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1

 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.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. AZ-11-1091-PaDJu and

) AZ-11-1092-PaDJu

DEED AND NOTE TRADERS, LLC, ) (Consolidated)

)

Debtor. ) Bk. No. 10-03640

______________________________)

)

PNC MORTGAGE; BAC HOME LOANS )

SERVICING, LP, fka )

Countrywide Home Loans )

Servicing, L.P.; U.S. BANK, )

N.A.; AMERICA’S SERVICING )

COMPANY; WELLS FARGO BANK, )

N.A.; FLAGSTAR BANK, FSB; )

CHASE HOME FINANCE, LLC; THE )

BANK OF NEW YORK MELLON, fka )

The Bank of New York; DEUTSCHE)

BANK NATIONAL TRUST COMPANY; )

LITTON LOAN SERVICES; )

CITIBANK, N.A.; ONEWEST BANK, )

FSB; AURORA LOAN SERVICES, )

LLC; HSB MORTGAGE SERVICES; )

HSBC BANK USA, N.A., )

)

Appellants, )

)

v. ) M E M O R A N D U M1

)

DEED AND NOTE TRADERS, LLC, )

)

Appellee. )

______________________________)

Argued and Submitted on February 24, 2012 

 at Phoenix, Arizona

Filed - April 5, 2012

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Eileen W. Hollowell, Bankruptcy Judge, Presiding

FILED

APR 05 2012

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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2 Unless otherwise indicated, all chapter, section and rule

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

to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 

The Federal Rules of Civil Procedure are referred to as “Civil

Rules.”

-2-

 

Appearances: David W. Cowles of Tiffany & Bosco, P.A. argued

for Appellants Wells Fargo Bank, N.A., Chase Home

Finance, LLC, Litton Loan Services, Deutsche Bank

National Trust Company, U.S. Bank National

Association, BAC Home Loans Servicing, LP,

America's Servicing Company, PNC Mortgage,

Flagstar Bank, FSB and The Bank of New York

Mellon. Jessica R. Kenney of McCarthy, Holthus &

Levine argued for Appellant Aurora Loan Services,

LLC. Scott D. Gibson of Gibson, Nakamura & Green,

PLLC argued for Appellee Deed and Note Traders,

LLC. 

Before: PAPPAS, DUNN and JURY, Bankruptcy Judges.

Appellants appeal the order of the bankruptcy court

confirming the chapter 112 plan of reorganization filed in this

case by debtor Deed & Note Traders, LLC (“DNT”). We AFFIRM.

FACTS

DNT is an Arizona limited liability company that was formed

in 1993. Since then, it has engaged in the real estate business

in Tucson, Arizona, purchasing, rehabilitating, leasing and

selling residential properties. DNT is wholly owned by the Kinas

Family Trust, and David Kinas (“Kinas”) is the principal manager.

DNT financed the acquisition of its properties using its own

operating income and through the many loans it obtained from

individual investors. These were generally short-term, high

interest loans. It was DNT’s business practice to hold a
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property for about a year, during which time it would

rehabilitate the property, and then refinance the loan with

traditional lenders at market rates. As property values

increased, DNT would also sell property in its inventory at a

profit.

In December 2006, the Arizona attorney general investigated

the business practices of DNT and, after lengthy negotiations,

DNT and the state entered into a Consent Agreement. Under the

terms of the agreement, DNT was obliged to sell a number of

houses back to their original owners and “agreed to pay a large

sum as and for attorney fees incurred by the state.” These

payments and transactions occurred at the beginning of a

declining real estate market and, according to DNT, practically

eliminated any operating reserves previously held by DNT. DNT’s

financial problems were exacerbated in August 2007 when First

Magnus Financial Corporation, a large provider of traditional and

other residential loan programs in Arizona, shut down and filed

for bankruptcy.

DNT’s First Bankruptcy Case 

The combination of fines, the loss of funding sources for

buyers from DNT’s inventory, and the corresponding loss of sales

revenue caused DNT to file its first petition for protection

under chapter 11 on September 7, 2007. On September 20, 2007,

DNT filed its schedules in which it listed a total of

$40,581,976.00 in real property assets and $29,807,073.00 in

secured claims against those properties. The total unsecured

debt was $706,208.12, most of which was debt held by insiders and

the secured creditors. 
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DNT filed its plan and disclosure statement on December 26,

2007; the plan was amended on April 24 and May 22, 2008. We

refer to the twice-amended plan as the “First Plan.” All claims

of the appellants in this appeal were classified as Class 4

Secured Claims in the First Plan. These claims were to be

treated as follows:

- All claimants would retain their respective security

interests on the properties securing their claims. 

- The arrears on these claims, together with accrued unpaid

interest at the contract rate, were added to the principal

balance on the secured debts as of the effective date of the

plan. This amount (i.e., the arrears plus the unpaid principal

balance) was the new “outstanding balance” on the secured

creditors’ claims. 

- The claimants would receive monthly deferred interest-only

payments on the outstanding balance. The interest accruing on

the outstanding balance was based on the published 30-year

residential mortgage rate for the Tucson area provided on the

internet website, bankrate.com, from and after the effective

date.

- The claims would be paid in full by DNT, either at the

time of sale of the secured property or upon refinancing the

obligation, or on or before a stated maturity date. The maturity

date for first-priority liens was the seventh anniversary of the

effective date; the maturity date for any junior liens was the

fifth anniversary.

On September 16, 2008, DNT reported to the bankruptcy court

that all objections to the First Plan had been resolved by
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-5-

stipulation. The bankruptcy court entered an order confirming

the First Plan on October 23, 2008. The effective date was

November 3, 2008. 

In the year after the effective date, there were almost a

hundred motions for relief from stay, notices of default, or

associated pleadings filed by secured creditors alleging DNT’s

failure to make monthly payments under the First Plan. Many of

these motions were granted. However, the record contains no

information regarding foreclosures or other actions taken by the

Class 4 Secured Creditors.

On March 9, 2009, DNT filed a motion for entry of a Final

Decree and Order Closing Case in the bankruptcy case. Three

creditors who are not involved in this appeal (the “Cherry

Group”) filed objections to the entry of final decree, arguing

that DNT had failed to make payments under the First Plan and

other irregularities. On May 4, 2009, the Cherry Group filed a

motion asking the bankruptcy court to revoke the order confirming

the First Plan on generally the same grounds as their objections

to final decree. The bankruptcy court ordered that the motion to

revoke and DNT’s motion for a final decree be considered at a

hearing on September 2, 2009. 

At that hearing, counsel for DNT and the Cherry Group

jointly informed the bankruptcy court that the Cherry Group was

withdrawing the motion to revoke the confirmation order and the

objections to entry of a final decree. DNT represented that it

would prepare the order for the final decree. 

Before entry of any final decree, appellant Wells Fargo,

N.A., moved to convert the bankruptcy case to a chapter 7 case on
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-6-

November 11, 2009. Wells Fargo alleged, inter alia, that there

had been mismanagement of estate funds by DNT and diversion of

assets to insiders, and that DNT’s actions constituted a material

default under the First Plan. After multiple continuances, the

bankruptcy court held a hearing on the motion to convert on

January 5, 2010. Again, at the hearing, counsel for the parties

informed the court that the issues had been resolved. A joint

stipulation withdrawing the motion to convert was entered on

February 5, and approved by the bankruptcy court on February 8,

2010. As all objections and impediments to entry of a final

decree had been overcome, on February 8, 2010, the bankruptcy

court also entered the final decree and order closing the case. 

DNT’s Second Bankruptcy Case 

Only four days after entry of the final decree and order

closing the case in the first bankruptcy case, on February 12,

2010, DNT filed a second chapter 11 petition. DNT’s schedules,

filed on March 16, 2010, list $19,858,452.00 in real property

assets and $27,085,119.94 in secured claims on those properties. 

Total unsecured debt was $591,935.88. 

DNT proposed a plan of reorganization in the second

bankruptcy case on April 2, 2010 (the “Second Plan”). The only

significant difference between the First and Second Plans, as the

parties have acknowledged in this appeal, was DNT’s proposal to 

reduce the Class 4 Secured Creditors’ allowed claims to the

“market value” of the properties securing those claims as of the

effective date of the plan. In other words, the Second Plan
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3

 “Cramdown” is a bankruptcy term of art referring to a

proposal to confirm a reorganization plan without the consent,

and frequently over the objection, of the secured creditors. See

Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R.

25, 50 (9th Cir. BAP 2008).

4

 For reasons unknown, the transcript of the December 22,

2010 hearing is the only one provided by the parties to the Panel

in the excerpts of record or docket.

-7-

proposed to “cramdown”3 these claims.

The Appellants, each holding loans secured by separate

properties, filed ten motions to dismiss the second bankruptcy

case on May 21, 2010. These motions argued in identical language

that DNT’s Second Plan violated § 1127(b), and the principle of

finality of orders, and that DNT was attempting to circumvent the

prohibition on modification of a confirmed, substantially

consummated plan by a subsequent chapter 11 case. 

In addition to the dismissal motions, over the next few

months, over sixty objections to confirmation of the Second Plan

were filed by creditors, including all of the Appellants. These

objections to confirmation generally parroted the arguments made

by the Appellants in the motions to dismiss. 

The bankruptcy court held several hearings on the motions to

dismiss and confirmation of the Second Plan, beginning in 

August, and culminating on December 22, 2010.4

 Before the

December 22 hearing, DNT had submitted a unilateral offer to

amend the plan so as to not cramdown on six of the ten loans

involved in the motions to dismiss, and either to abandon those

properties or consent to relief from stay in favor of the secured

creditor. As to the remaining four loans and properties
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-8-

pertaining to creditors filing motions, DNT indicated its

position that the properties were worth more than the amount of

the respective debts secured by them, such that the creditors’

rights were thus not impaired under the Second Plan.

At the hearing, after counsel were heard, the bankruptcy

court denied the motions to dismiss the bankruptcy case,

concluding that, as the result of DNT’s amendment, none of the

secured creditors were impaired under the Second Plan. The

denial of these motions to dismiss was not appealed.

The bankruptcy court then conducted an evidentiary hearing

on plan confirmation. The court heard testimony from Kinas

regarding his management of DNT, why DNT failed to meet its

obligations under the First Plan, and the requirements for

confirmation of the Second Plan. Kinas was then cross-examined

by attorneys for various creditors. After hearing the testimony

and closing arguments of counsel, the bankruptcy court overruled

the objections to confirmation and confirmed the Second Plan.

In its oral decision, the bankruptcy court first observed

that, in its earlier ruling denying the motions to dismiss, it

had not commented on the focus of the secured creditors’

argument, that DNT was attempting to violate § 1127(b). The

bankruptcy court rejected this argument and found that DNT was

not attempting to thwart the First Plan’s treatment of oversecured creditors because the Second Plan treated them no

differently. Simply put, as to over-secured creditors, the court

concluded that they were not significantly impaired under either

Plan, and that DNT had not violated § 1127(b) and the principle

of finality of confirmation orders regarding those creditors. 
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As the court then observed, DNT’s proposed cramdown of the

claims of under-secured creditors was a different matter:

A more difficult call is for the properties and the

creditors secured by those properties who were not

crammed down in the first case and are being crammed

down in the second case, all of the arguments about

1127 and 1141 clearly the debtor here is seeking a

modification of the terms of the first plan. The

question is – is it justifiable[?] Is it justifiable?

And if it's justifiable, is the treatment being offered

to these creditors in good faith? That it seems to me

is the crux of the difficult decision here. I look at

this under the totality of the circumstances test, I

believe, for good faith. So the plan terms are short

basically. This is not an extended period of time of a

stretch out. The interest rate isn't being modified

from the first plan. Those are good things. It's the

cramdown itself which is the essence of the problem. 

But unlike the few cases I've been able to find on

this, I'm not sure this is a situation where all of the

burden is being shifted to the secured creditors

because, in fact, all they were ever going to get is

the value of the property because of the nature of the

anti-deficiency statute in Arizona. I believe that the

debtor has met its burden here, but I would say it's a

very, very close call.

The bankruptcy court decided that the Second Plan should be

confirmed, and the objections to confirmation overruled. It

entered an order confirming the Second Plan on February 10, 2011. 

Appellants filed a timely appeal on February 24, 2011.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. 

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

§ 158.

ISSUE

Whether the bankruptcy court abused its discretion in

confirming the Second Plan.

Whether the bankruptcy court clearly erred in determining

that the Second Plan was filed in good faith as required under 
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-10-

§ 1129(a)(3).

STANDARDS OF REVIEW

While a bankruptcy court's decision to confirm a chapter 11

plan is reviewed for an abuse of discretion, its determination

that the plan satisfies the confirmation requirements 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.
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DISCUSSION

I. Appellants have standing because at least one of 

the appellants, Wells Fargo, is aggrieved.

As a preliminary matter, DNT argues that the Appellants lack

standing to appeal the bankruptcy court’s order. DNT appears to

argue that because the Appellants filed the motions to dismiss as

the vehicle for arguing that §§ 1127(b) and 1129(a)(3) prohibit

the bankruptcy court from confirming a second plan that modifies

the terms of a confirmed plan, and since the bankruptcy court, in

denying those motions, ruled that the Appellants were not

impaired under the terms of the Second Plan, therefore any

provisions in the Second Plan modifying the rights of secured

creditors did not apply to the Appellants. We disagree with DNT

that the Second Plan did not impair the rights of any of the

Appellants.

In the Ninth Circuit, a party has standing to appeal a

bankruptcy court order if the party is "aggrieved" by the order. 

In re Commercial W. Fin. Corp., 761 F.2d 441, 443 (9th Cir.

1985). An appellant is aggrieved if "directly and adversely

affected pecuniarily by an order of the bankruptcy court"; in

other words, the order must diminish the appellant's property,

increase its burdens, or detrimentally affect its rights. Duckor

Spradling & Metzger v. Baum Trust (In re P.R.T.C., Inc.),

177 F.3d 774, 777 (9th Cir. 1999) (quoting Fondiller v. Robertson

(In re Fondiller), 707 F.2d 441, 442 (9th Cir. 1983)).

In this appeal, it cannot be seriously disputed that DNT is

attempting a cramdown of the Appellants’ secured claims. Simply

put, through the Second Plan, DNT is attempting to restructure
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the rights granted to some of the Appellants through the First

Plan and to reduce the amount of secured debt it will pay to some

of them. In this sense, DNT is unquestionably attempting to

“detrimentally affect the rights” of some of the secured

creditors. As a result, the Appellants whose claims are to be

restructured have standing to appeal confirmation of DNT’s Second

Plan.

Moreover, even if one or more of the individual appellants

arguably lack standing to appeal, there is at least one creditor

that did not file a motion to dismiss, yet filed an objection to 

confirmation and that holds a claim targeted in the Second Plan

for cramdown. Wells Fargo holds a claim secured by a lien on the 

DNT property located on North Orchard Street in Tucson. Wells

Fargo did not file a motion to dismiss, but it did object to

confirmation of the Second Plan on August 6, 2010. According to

the appendix to the declaration of Kinas submitted by DNT in

support of plan confirmation on December 22, 2010, the current

balance due on the Wells Fargo loan on the North Orchard property

was $82,317.88, and current market value of the property was 

$70,000. In the Second Plan, DNT proposed to cramdown the Wells

Fargo secured claim to $70,000. Unlike claims secured by other 

properties involved in the motions to dismiss, DNT did not make

any offer to abandon, or to consent to relief from stay, on that

property. Put another way, Wells Fargo’s rights were

detrimentally affected, or in other words, it was “aggrieved,”

when the bankruptcy court confirmed the Second Plan. 

If one appellant has standing, there is no need to examine

the standing of the other appellants. Carey v. Population
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5 § 1127. Modification of plan.

* * * 

 

(b) The proponent of a plan or the reorganized debtor may modify

such plan at any time after confirmation of such plan and before

substantial consummation of such plan, but may not modify such

plan so that such plan as modified fails to meet the requirements

of sections 1122 and 1123 of this title. Such plan as modified

under this subsection becomes the plan only if circumstances

warrant such modification and the court, after notice and a

hearing, confirms such plan as modified, under section 1129 of

this title.

-13-

Servs., Int'l, 431 U.S. 678, 682 (1977) (holding that if one

party has the requisite standing to appeal, the appellate court

"has no occasion to decide the standing of the other

appellees."); W. Watersheds Project v. Kraayenbrink, 632 F.3d

472, 485 (9th Cir. 2011) (same). We therefore decline to

entertain DNT’s objection to the Appellants’ standing to appeal.

II. The bankruptcy court did not clearly err in determining 

that extraordinary and unforseen circumstances were present

in this case which justified DNT’s proposal to cramdown 

secured claims in the Second Plan.

The Code makes clear that a debtor’s right to modify a

confirmed chapter 11 plan is subject to conditions. The

appellants have maintained, both in the bankruptcy court and on

appeal, that § 1127(b)5 prohibits DNT’s confirmation of a

chapter 11 plan proposing to change the terms of the treatment of

their claims under the substantially consummated First Plan. 

While case law unquestionably allows debtors to engage in serial

filings of chapter 11 cases, what is in dispute here is the sort

of justification required before a bankruptcy court should
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endorse a debtor’s second plan proposing to modify the terms of a

prior, confirmed and substantially consummated plan.

The only two courts of appeals to examine this question hold

that serial chapter 11 filings are not per se impermissible. In

Fruehauf Corp. v. Jartran (In re Jartran), the Seventh Circuit

observed that, 

there is no prohibition of serial good faith Chapter 11

filings in the Code — indeed, there is not even a time

limit on successive filings parallel to that imposed on

individuals or family farmers. 11 U.S.C. § 109(g). As

the district court noted, Congress could easily have

included repeat corporate debtors in that section; its

failure to do so indicates that corporate debtors are

exempt from even the minimal constraints on serial

filings imposed on other kinds of debtors.

886 F.2d 859, 869-70 (7th Cir. 1989). The court addressed

another serial chapter 11 case in In re Official Comm. of

Unsecured Creditors, 943 F.2d 752, 757 (7th Cir. 1991). Although

both of these cases painted the authority to file serial

chapter 11's with broad brush strokes, neither provided clear

guidance on whether, and to what extent, the plan proposed in the

second chapter 11 case could modify creditor treatment in the

first plan.

Following shortly after the Seventh Circuit decisions, the

Fifth Circuit decided In re Elmwood Dev. Corp., 964 F.2d 508, 511

(5th Cir. 1992). As described by the court,

This case raises for this circuit the de novo issue of

the extent to which a serial filing of a Chapter 11

petition evidences a lack of good faith on the part of

the debtor. We conclude that the mere fact that a

debtor has previously petitioned for bankruptcy relief

does not render a subsequent Chapter 11 petition "per

se" invalid. This conclusion is consistent with the

Supreme Court's recent teaching in Johnson v. Home

State Bank [111 S.Ct. 2150 (1991)]. The Johnson Court

held that serial Chapter 7 and Chapter 13 petitions

are not categorically prohibited. The Court reasoned
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that because Congress has enumerated certain instances

in which serial filings are per se impermissible, there

is no absolute prohibition in instances not so

enumerated. The Court considered the good faith

requirement to be adequate protection from abusive

serial filings.

Id. at 511. In providing guidance on when a second plan may

modify the terms of the first, the court states: “A second

petition would not necessarily contradict the original

proceedings because a legitimately varied and previously unknown

factual scenario might require a different plan to accomplish the

goals of bankruptcy relief." Elmwood, 964 F.2d at 511-12. In

short, Elmwood stands for the proposition that, in proposing yet

a second chapter 11 plan, the debtor must demonstrate some sort

of genuine need to reorganize as the result of unforeseen changes

in circumstance which contribute to the debtor's default under

its obligations under the earlier plan. Id. Indeed, in Elmwood,

the court cited the national credit crunch in the early 1990s as

an example of changed circumstances in real estate markets that

might have justified modification of the debtor’s earlier plan. 

But because the credit crunch and resulting depressed real estate

market had existed for several years before substantial

consummation of the first plan, the Fifth Circuit ruled that

those conditions, under the facts of that case, were sufficiently

foreseeable that they would not justify a modification of the

first plan. Id. at 512. 

Arizona bankruptcy courts have recognized that serial

chapter 11 filings are permissible if made in good faith. United

States v. Shepherd Oil, Inc. (In re Shepherd Oil, Inc.), 118 B.R.

741, 747 (Bankr. D. Ariz. 1990) (citing favorably to Jartran). 
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Later case law supports both the principle that serial chapter 11

filings are not per se impermissible, and that a second plan may

modify the first plan where there are extraordinary circumstances

that are unforeseeable. In re Tillotson, 266 B.R. 565, 569

(Bankr. D. Md. 2001); In re Adams, 218 B.R. 597 (Bankr. D. Kan.

1998); In re Northtown Realty Co., L.P., 215 B.R. 906, 911

(Bankr. E.D.N.Y. 1998); In re Bouy, Hall & Howard & Assocs.,

208 B.R. 737 (Bankr. S.D. Ga. 1995); In re Casa Loma Assocs.,

122 B.R. 814 (Bankr. N.D. Ga. 1991). Even the Appellants appear

to agree that “a confirmed plan of reorganization that has been

substantially consummated is not subject to modification by

filing a second bankruptcy case unless the second filing is in

good faith and necessitated by unforeseeable circumstances.” 

Appellants’ Reply Br. at 8 (emphasis added).

The question presented to the Panel is, did the bankruptcy

court clearly err in finding that there were extraordinary,

unforseeable circumstances present that allowed DNT to propose a

second chapter 11 plan that modified the secured creditors’

rights under the First Plan? The bankruptcy court found that,

while it was a “close call,” justification for this extraordinary

approach to dealing with DNT’s finances existed:

Those cases do talk about the fact that a simple change

in economic circumstances isn’t enough. . . . This

was, at least in this state, a depression. The level

at which things fell off the cliff was not foreseeable

in my opinion and more importantly what was not

foreseeable was the freeze in the credit markets that

would have made it impossible for the Debtor to get

refinancing. So, I find in the circumstances of this

case that what happened to the economy was the

equivalent of an airplane flying into a factory. So

that’s the finding.

Hr’g Tr. 18:24—19:10, December 22, 2010. 
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The bankruptcy court indicated on the record that it had

invested time in reviewing real property appraisals connected

with this case. Tr. Hr’g 87:18-23, December 22, 2010. It is

axiomatic that in a busy bankruptcy court such as Arizona, a

bankruptcy judge is frequently exposed to facts and information

about how economic conditions in that district affect the parties

coming before the court. The bankruptcy judge need not ignore

its particular knowledge of such matters; the Supreme Court has

endorsed on multiple occasions the principle that a federal judge

may take judicial notice of catastrophic economic conditions. 

Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 249 (1978)

(discussing “the broad and desperate emergency economic

conditions of the early 1930's”); Home Building & Loan Ass’n. v.

Blaidsdale, 290 U.S. 398, 445 (1934) (recognizing emergency

powers of a state in response to severe economic conditions);

Edwards v. Kearzey, 96 U.S. 595, 602-03 (1877) (discussing

economic conditions in several states of the South after the

Civil War). In short, the bankruptcy court had a legal and

evidentiary foundation for its finding of fact that extraordinary

circumstances were present in this bankruptcy case. 

The Appellants have not challenged the bankruptcy court’s

analysis of extraordinary market conditions surrounding DNT’s

reorganization cases. Rather, they contend that the

deteriorating real estate market was foreseeable to DNT,

observing that immediately following confirmation of DNT’s First

Plan, its manager admitted that the Arizona real estate market

was in decline. But the Appellants confuse two distinct economic

conditions: the real estate market (i.e., the supply and demand
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for properties) and the state of the credit market (i.e., the

availability of loans for property acquisition and financing). 

While the real estate market may have been in decline in

2007 prior to confirmation of the First Plan, the extent of the

problems to come in the broader credit market, on which DNT would

have to rely for funding of its acquisitions, refinancing, and to

fund purchasers of its properties, would devolve into what one

court described as a “seizure” following the bankruptcy filing of

Lehman Brothers in September 2008. Bd. of Tr. of the AFTRA Ret.

Fund v. JP Morgan Chase Bank, N.A., 806 F. Supp.2d 662, 677

(S.D.N.Y. 2011). As it turned out, there was a "crisis in the

subprime market that . . . spread to the rest of the real estate

market, collapse of the financial markets generally, [and]

market-wide liquidity crisis." In re Lehman Bros. Sec. & ERISA

Litig., 799 F. Supp.2d 258, 264 (S.D.N.Y. 2011). It was this

unanticipated collapse in the general availability of credit, not

the possibly foreseeable decline in the Arizona housing market,

that convinced the bankruptcy court in this appeal to find:

The level at which things fell off the cliff was not

foreseeable in my opinion, and more importantly what

was not foreseeable was the freeze in the credit

markets that would have made it impossible for the

debtor to get refinancing.

Hr’g Tr. 19:3-7, December 22, 2010.

The Appellants offered no evidence to the bankruptcy court,

nor have they given us a reasoned argument, to show that the

credit market freeze in Autumn 2008 would have been foreseeable

when DNT submitted its First Plan in December 2007, or its

amended plans in early 2008. Instead of advancing any fullydeveloped argument why the filing of DNT’s second bankruptcy
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case, and the need for its Second Plan, was not under

extraordinary and unforseeable circumstances, the Appellants have

repeatedly challenged the good faith of DNT in pursuing a second

bankruptcy filing. In their briefs, the Appellants suggest that

DNT manipulated the bankruptcy system by seeking entry of a final

decree, waiting eleven months for entry of that decree without

amending its plan, and then filing a second chapter 11 case only

four days after entry of the final decree. The facts do not

support the Appellants’ bad faith argument.

It is true that eleven months elapsed from the time DNT

filed its motion and entry of the final decree. But that delay

was not solely caused by any lack of diligence on DNT’s part. 

The facts instead establish that DNT submitted the motion for

final decree after substantially consummating the First Plan by

beginning the distributions to creditors, something the

Appellants have not disputed. But three creditors objected to

the motion, and in turn moved to revoke confirmation of the First

Plan in May. The bankruptcy court decided that it could not

enter a final decree while a motion to revoke was on the table,

so it ordered that the motions to revoke and for final decree be

heard together. After several continuances, the hearing was held

on September 2, 2009, at which DNT and the creditors announced a

settlement and withdrawal of the motion to revoke. DNT indicated

to the court that it would prepare a final decree order.

Shortly thereafter, Appellant Wells Fargo moved to convert

the case to chapter 7 on November 11. Again, entry of the final

decree was continued along with the conversion motion. After

more continuances, the bankruptcy court held a hearing on the
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6

 The Appellants have not argued that DNT did not satisfy

any of the other § 1129(a) confirmation requirements. While

(continued...)

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motion to convert on January 5, 2010. Wells Fargo opted to

withdraw the motion to convert, and a joint stipulation doing so

was filed on February 5, and approved by the bankruptcy court on

February 8, 2010. All objections and impediments to entry of

final decree being withdrawn, on February 8, 2010, the court then

entered the final decree and order closing the case. In short,

the eleven-month delay between filing the motion for final decree

and entry of the order was not necessarily the result of delay by

DNT, and we find no merit in the Appellants’ suggestion that the

facts demonstrate a lack of good faith in this respect. Like the

bankruptcy court, in light of changing financial conditions, we

also find it unsurprising that DNT would quickly file a second

petition under chapter 11 within four days. Indeed, according to

the testimony of Kinas, DNT’s worsening cash flow problems and

lack of access to credit threatened the existence of the company

at the time of filing the second petition.

III. The bankruptcy court did not abuse its discretion in

confirming the Second Plan and did not clearly err in ruling

that the plan met the good faith standard of § 1129(a)(3).

From the beginning of the second bankruptcy case, the

bankruptcy court cautioned the parties that the lynchpin for

confirmation of a second plan would center on the requirement

that DNT was proceeding in good faith as required in

§ 1129(a)(3). It is the bankruptcy court’s decision on this

single confirmation element that forms the basis of the

Appellants’ appeal.6
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6(...continued)

there was some discussion by the parties in the bankruptcy court

hearings regarding whether the Second Plan was feasible for

purposes of § 1129(a)(11), the feasibility question has not been

raised in this appeal.

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Section 1129(a)(3) provides that a bankruptcy court shall

confirm a plan only if the “plan has been proposed in good faith

and not by any means forbidden by law.” Section 1129(a)(3) does

not define good faith. Platinum Capital, Inc. v. Sylmar Plaza,

L.P. (In re Sylmar Plaza, L.P.), 314 F.3d 1070, 1074 (9th Cir.

2002) (citing In re Madison Hotel Assocs., 749 F.2d 410, 425 (7th

Cir. 1994)). However, under the decisions interpreting this Code

provision, a plan may be found to be proposed in good faith where

it achieves a result consistent with the objectives and purposes

of the Code. Id. (citing Ryan v. Loui (In re Corey), 892 F.2d

829, 835 (9th Cir. 1989)); see also Madison Hotel, 749 F.2d at

425 ("For purposes of determining good faith under section

1129(a)(3) . . . the important point of inquiry is the plan

itself and whether such plan will fairly achieve a result

consistent with the objectives and purposes of the Bankruptcy

Code."). The bankruptcy court’s good faith determination must be

based on the totality of the circumstances. Smyrnos v. Padilla

(In re Padilla), 213 B.R. 349, 352 n.2 (9th Cir. BAP 1997). The

debtor, as plan proponent, has the burden of showing, by a

preponderance of the evidence, that its chapter 11 plan is

proposed in good faith. Farmers Home Admin. v. Arnold & Baker

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

court’s finding of a debtor’s good faith in proposing a
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chapter 11 plan is a finding of fact and reviewed for clear

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

In this case, while there are facts supporting the

bankruptcy court’s view that it was a “very, very close call,”

the court did not clearly err in determining that the plan was

proposed in good faith. The court’s analysis on this issue

conformed with that dictated by Ninth Circuit case law, in that

the bankruptcy court considered the totality of the

circumstances. The court found that the interest rate terms

proposed for secured creditors’ claims were unchanged between the

First and Second Plans. The repayment term for secured loans

under the Second Plan was relatively short, not an extended

“stretch out.” As discussed above, the court also determined

that § 1127(b) was not a bar to DNT’s proposed cramdown in the

Second Plan because, the court found, extraordinary, unforseeable

circumstances existed as compared to those surrounding

confirmation of the First Plan. And finally, the court

determined that, under Arizona’s anti-deficiency law, the most a

creditor with a lien on a house would likely receive in a

liquidation or relief from stay scenario would be the foreclosure

value of that property (“All the [creditors] were ever going to

get is the value of the property because of the nature of the

anti-deficiency statute in Arizona.” Hr’g Tr. 84:7, December 22,

2010.) Thus, DNT’s proposal to pay secured creditors the “market

value” was consistent with the value of their state law rights. 

The bankruptcy court was correct in this last assumption. 

In Arizona, two statutes protect borrowers from lenders seeking

to collect debt that remains outstanding after foreclosure on the
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7 § 33-729. Purchase money mortgage; limitation on

liability A. . . . [I]f a mortgage is given to secure the

payment of the balance of the purchase price, or to secure a loan

to pay all or part of the purchase price, of a parcel of real

property of two and one-half acres or less which is limited to

and utilized for either a single one-family or single two-family

dwelling, the lien of judgment in an action to foreclose such

mortgage shall not extend to any other property of the judgment

debtor, nor may general execution be issued against the judgment

debtor to enforce such judgment, and if the proceeds of the

mortgaged real property sold under special execution are

insufficient to satisfy the judgment, the judgment may not

otherwise be satisfied out of other property of the judgment

debtor, notwithstanding any agreement to the contrary.

A.R.S. § 33-729 (2011).

8

 § 33-814. Action to recover balance after sale or

foreclosure on property under trust deed . . . .

G. If trust property of two and one-half acres or less which is

limited to and utilized for either a single one-family or a

single two-family dwelling is sold pursuant to the trustee's

power of sale, no action may be maintained to recover any

difference between the amount obtained by sale and the amount of

the indebtedness and any interest, costs and expenses.

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house securing a purchase-money loan(s). See Ariz. Rev. Stat.

§ 33-729 (2007).7

 When land is secured by a deed of trust,

whether or not the loan was used to purchase the property, the

homeowner is protected from those seeking deficiency judgments by

Ariz. Rev. Stat. § 33-814 (2007).8

The bankruptcy court found, under all these circumstances,

that DNT had shown it acted in good faith by filing the second

bankruptcy petition and in proposing its Second Plan. Opposed to

this was the Appellants’ continuing argument that DNT made a

calculated and tactical decision to wait for the first bankruptcy

case to be closed rather than in good faith seeking to amend the

First Plan. But the bankruptcy court’s finding on good faith
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rejected this contention, resolving a disputed question of fact. 

Even if there are facts to support the Appellants’ argument,

where there are “two permissible views of the evidence, the

factfinder’s choice between them cannot be clearly erroneous.” 

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 400-01 (1990).

Having settled the only objection to confirmation under 

§ 1129(a), and finding that all other provisions of that section

were satisfied, the bankruptcy court acted properly in deciding

to confirm the Second Plan. In doing so, it did not abuse its

discretion.

CONCLUSION

We AFFIRM the bankruptcy court’s order confirming the Second

Plan.