Source: https://law.justia.com/cases/federal/appellate-courts/F3/112/429/585382/
Timestamp: 2019-11-13 04:05:28
Document Index: 461626985

Matched Legal Cases: ['§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 362', '§ 362', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363', '§ 363']

In Re Hotel Sierra Vista Limited Partnership, an Arizonalimited Partnership, Debtor.chequers Investment Associates, a Texas General Partnership,plaintiff-appellant, v. Hotel Sierra Vista Limited Partnership, an Arizona Limitedpartnership, Defendant-appellee, 112 F.3d 429 (9th Cir. 1997) :: Justia
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In Re Hotel Sierra Vista Limited Partnership, an Arizonalimited Partnership, Debtor.chequers Investment Associates, a Texas General Partnership,plaintiff-appellant, v. Hotel Sierra Vista Limited Partnership, an Arizona Limitedpartnership, Defendant-appellee, 112 F.3d 429 (9th Cir. 1997)
U.S. Court of Appeals for the Ninth Circuit - 112 F.3d 429 (9th Cir. 1997) Argued and Submitted March 12, 1997. Decided April 29, 1997
In its order confirming the plan, the bankruptcy court concluded that the post-petition room revenues were cash collateral. The bankruptcy court nevertheless denied Chequers a secured interest in the post-petition hotel revenues. The bankruptcy court determined that Chequers had not met the burden of proving the "extent" of its interest as required by 11 U.S.C. § 363(o) (2).
We review de novo the district court's decision on an appeal from the bankruptcy court. In re Sternberg, 85 F.3d 1400, 1404 (9th Cir. 1996). Conclusions of law made by the bankruptcy court are reviewed de novo. In re Alsberg, 68 F.3d 312, 314 (9th Cir. 1995), cert. denied, --- U.S. ----, 116 S. Ct. 1568, 134 L. Ed. 2d 667 (1996). The bankruptcy court's findings of fact are reviewed for clear error. Id.
After its Chapter 11 filing and through the time of the bankruptcy court's order confirming its plan, HSVLP deposited all revenues received from the hotel, including those attributable to room occupancy, in a single money market account. Chequers contends that HSVLP's trustee violated 11 U.S.C. § 363(c) (4) by so doing. That section provides that "... the trustee shall segregate and account for any cash collateral in the trustee's possession, custody, or control." 11 U.S.C. § 363(c) (4).
Because of the then uncertain status of room revenues, the bankruptcy court deferred deciding the legal question or ordering HSVLP to follow the restrictions imposed by § 363(c) (4). Instead, the bankruptcy court required HSVLP to sequester the hotel's revenues and meet its operating expenses using those funds. The bankruptcy court determined ultimately that Chequers's secured interest in post-petition room revenues did not survive post-petition because Chequers failed to meet its burden of proving the "extent" of its interest in those revenues. See 11 U.S.C. § 363(o) (2).
Past uncertainty aside, Chequers asserts that HSVLP's commingling of room revenues with other revenues in and of itself constitutes reversible error. Because of HSVLP's commingling, Chequers contends that, as a matter of equity, we should shift the burden of proof under § 363(o) (2) and require HSVLP to prove the amount of revenues that are free of Chequers's claim. Chequers relies on our opinion in Freightliner Market Development Corp. v. Silver Wheel Freightlines, Inc., 823 F.2d 362 (9th Cir. 1987) for this proposition. We reject application of Freightliner in this matter.
In Freightliner, we considered a debtor's use of cash collateral in violation of 11 U.S.C. § 363(c) (2) in the context of a creditor's request for relief from an automatic stay under 11 U.S.C. § 362(g). Id. at 368. The burdens of proof in § 362(g) share a parallel organization with those in § 363(o).4
The bankruptcy court in Freightliner concluded that the debtor violated § 363(c) (2) because the trustee "used cash collateral derived from collection of accounts receivable purportedly covered by [the creditor's] security interest without a court order or [the creditor's] consent."5 Freightliner, 823 F.2d at 367. The bankruptcy court found that the trustee's use of cash collateral "prevented the creditor from tracing the proceeds of [the creditor's] collateral or establishing the level of [the creditor's] receivables collateral at the time of the filing of the bankruptcy proceeding." Id. at 367-68.
Because of the trustee's violation of § 363(c) (2), the bankruptcy court awarded the creditor an interest in all of the debtor's pre-petition and post-petition accounts receivable. Id. at 368. The bankruptcy court then shifted the burden to the debtor to prove that cash collateral was not being used after entry of its order prohibiting such use. Id. The statutory violation was not solely the cause of the burden shift. Rather,
[t]he basis for the shift was the [bankruptcy] court's view that [the] debtor improperly used cash collateral in violation of § 363(c) (2). The [bankruptcy] court concluded that the burden of proof on the issue of tracing the accounts receivable was most fairly placed on the Trustee because his predecessor's (debtor's) breach of duty resulted in the inability to trace the proceeds derived therefrom.
We do not adopt the equitable remedy of shifting the burden under § 363(o) (2) for two reasons. First, because of the unsettled nature of the law on the question whether hotel room revenues constituted "rents" within the meaning of § 363(a), the bankruptcy court declined to enter a cash collateral order. To maintain the status quo, HSVLP complied with all the bankruptcy court ordered it to do, namely to sequester its revenues and meet operating expenses out of post-petition revenues. Second, nothing in the record suggests that HSVLP's failure to segregate and account resulted in the inability of either party to establish the validity and extent of its interest in the sequestered funds.
The creditor in Freightliner faced losing its security interest in post-petition revenues because the debtor's actions denied the creditor the ability to meet his burden. Nothing in the record in this case suggests that HSVLP's actions prevented Chequers from proving the extent of its interest. Chequers's argument can be summarized in this manner: because HSVLP failed to undertake efforts, as a precautionary measure owing to the duty imposed by § 363(c) (4), to segregate and account for revenues that ultimately were determined to be cash collateral, we should shift the burden of proof under § 363(o) (2) and remand this case. This we decline to do.
Our refusal to shift the burden does not end our inquiry, however. The bankruptcy court found that Chequers had failed to meet its burden of proving the "extent" of its interest under § 363(o) (2). Chequers argues that it met its burden. We agree.
We review the bankruptcy court's finding for clear error. In re Lazar, 83 F.3d 306, 308 (9th Cir. 1996). A party seeking to prove the "extent" of its interest under § 363(o) (2) must do two things. First, as a preliminary matter, the party must prove that it holds a perfected security interest in post-petition revenues to which its liens still rightly attach. See In re Days California Riverside Limited Partnership, 27 F.3d 374, 377 (9th Cir. 1994) ("Days California "). Second, a party must prove the amount of money to which its liens attach. See 11 U.S.C. § 363(o) (2). Our decision in Days California provides the formula for determining the amount of revenues to which liens may survive post-petition. In Days California, we stated that
Equity demands in these unusual circumstances that we review Chequers's evidentiary efforts without regard to the Days California formula. The question, then, is whether Chequers proved the "extent" of its interest within the meaning of § 363(o) (2). We hold the bankruptcy court's finding was clearly erroneous. Chequers submitted documents proving its unquestioned entitlement to sequestered room revenues at the confirmation hearing.
Documentary evidence introduced at the confirmation hearing with respect to the extent of Chequers's post-petition security interest included both a copy of a valid security instrument and accounting statements reflecting post-petition gross room revenues. Because of the unusual timing of events in this case, neither the parties nor the bankruptcy court attempted to apply the Days California formula to the hotel's revenues and expenses. Equity requires that the court and the parties have the opportunity to allocate direct and indirect expenses to each category of revenues listed on the trustee's reports. See Days California, 27 F.3d at 377. This will result in a net diminution of gross room revenues to which Chequers's liens attach after petition, but will be consistent with effectuating the burden structure of 11 U.S.C. § 363(o) (2) and our decision in Days California.
HSVLP relied upon the Bankruptcy Appellate Panel's ("BAP") decision in In re Northview Corp., 130 B.R. 543, 548 (9th Cir. BAP 1991), which held that post-petition room revenues were not "rents" within the meaning of 11 U.S.C. § 363(a). The BAP noted that the "weight of authority" held that hotel room revenues were not "rents." Id. at 546 n. 4. Two bankruptcy decisions in the district of Arizona followed Northview. See In re Thunderbird Inn, Inc. 151 B.R. 224, 226-27 (Bankr.D. Ariz. 1993); In re General Associated Investors Limited Partnership, 150 B.R. 756, 759-62 (Bankr.D. Ariz. 1993).
Chequers relied on another bankruptcy decision for the district of Arizona that refused to follow Northview. See In re Everett Home Town Limited Partnership, 146 B.R. 453, 456 (Bankr.D. Ariz. 1992). In addition, Chequers pointed to a bankruptcy decision in the Northern District of California that declined to follow Northview. See In re S.F. Drake Hotel Associates, 131 B.R. 156, 158-61 (Bankr.N.D. Cal. 1991). Although it acknowledged its decision was against the weight of authority, the district court for the Northern District of California later affirmed the bankruptcy court's decision. See In re S.F. Drake Hotel Associates, 147 B.R. 538, 539-40 (N.D. Cal. 1992).
The parties disagreed sharply over the precedential weight of BAP decisions on the bankruptcy courts that compose our circuit. See Bank of Maui v. Estate Analysis, Inc., 904 F.2d 470, 472 (9th Cir. 1990) (expressing uncertainty over "the authoritative effect of a BAP decision").
Section 363(c) (2) provides: