Court Opinion

ID: 4192698
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:02:15.842728+00
Date Added: 2024-06-11T14:13:50.412716
License: Public Domain

FILED
                                                                 AUG 09 2016
 1                         NOT FOR PUBLICATION
 2                                                           SUSAN M. SPRAUL, CLERK
                                                               U.S. BKCY. APP. PANEL
                                                               OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.     NC-15-1331-TaJuKi
                                   )
 6   CHARLES HENRY UTZMAN and      )      Bk. No.     3:14-bk-31828
     ANNA KATHRYN UTZMAN,          )
 7                                 )
                     Debtors.      )
 8   ______________________________)
                                   )
 9   CHARLES HENRY UTZMAN; ANNA    )
     KATHRYN UTZMAN,               )
10                                 )
                     Appellants,   )
11                                 )
     v.                            )      MEMORANDUM*
12                                 )
     SUNTRUST MORTGAGE, INC.,      )
13                                 )
                     Appellee.     )
14   ______________________________)
15                   Argued and Submitted on July 28, 2016
                          at San Francisco, California
16
                             Filed – August 9, 2016
17
               Appeal from the United States Bankruptcy Court
18                 for the Northern District of California
19     Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding
20
     Appearances:     David N. Chandler, Jr. argued for Appellants;
21                    Dennis Peter Maio of Reed Smith LLP argued for
                      Appellee.
22
23   Before:   TAYLOR, JURY, and KIRSCHER, Bankruptcy Judges.
24
25
26        *
             This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8024-1(c)(2).
 1                               INTRODUCTION
 2        Chapter 111 debtors Charles Henry Utzman and Anna Kathryn
 3   Utzman appeal from an order denying their motion for
 4   reconsideration of an order granting stay relief under
 5   § 362(d)(1).
 6        We AFFIRM the bankruptcy court.
 7                                  FACTS
 8        In 2007, the Debtors borrowed $1,365,000 from SunTrust
 9   Mortgage, Inc. for the construction of a residence on real
10   property located in Mill Valley, California (the “Property”).
11   The obligation owed to SunTrust was secured by a deed of trust
12   against the Property.
13        Despite the Suntrust loan, the Debtors failed to pay all
14   obligations owed for construction services, so various state
15   statutory liens were recorded against the Property.    They also
16   failed to pay all real property taxes in relation to the
17   Property and to pay for all required real property related
18   insurance.   Eventually, they also defaulted on their payments
19   under the Suntrust note.
20        On the eve of Suntrust’s foreclosure, they filed a
21   chapter 11 petition.    Their schedule A listed the Property with
22   a then current value of $1,300,000 and stated that it was
23   encumbered by secured claims in the amount of $1,978,493.29.
24   Their schedule D listed SunTrust’s secured claim in the amount
25
          1
             Unless otherwise indicated, all chapter and section
26   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27   All “Rule” references are to the Federal Rules of Bankruptcy
     Procedure. All “Civil Rule” references are to the Federal Rules
28   of Civil Procedure.

                                      2
 1   of $1,897,262.29.    The record shows that construction of the
 2   residence remained incomplete, but the Debtors, nonetheless,
 3   occupied the home.
 4        Five months after the bankruptcy filing, SunTrust filed its
 5   second motion for relief from stay seeking relief pursuant to
 6   § 362(d)(1) and (d)(2).    SunTrust argued that cause existed for
 7   § 362(d)(1) relief based primarily on a lack of adequate
 8   protection of its interest in the Property.    Their adequate
 9   protection argument did not focus exclusively on the lack of
10   payments on the undersecured Suntrust note.    They also argued
11   that the failure to pay taxes, the existence of liens, the lack
12   of a certificate of occupancy, the lack of a sewer easement over
13   other debtor-owned real property, and the existence of a
14   landslide jeopardizing the pool created risks that the Debtors
15   were not addressing.
16        The Debtors opposed.    They argued that, despite a lack of
17   equity, SunTrust was adequately protected by the value of the
18   Property.   They asserted generally that real estate values in
19   the Bay Area were rising and that progress in the construction
20   of their residence resulted in enhancement of the Property’s
21   value.
22        At the hearing, the bankruptcy court noted that the Debtors
23   conceded that there was no equity in the Property,
24   notwithstanding SunTrust’s recent appraisal valuing the Property
25   at $1.95 million dollars, and that SunTrust held an allowed
26   claim in excess of $1.8 million dollars.    It also noted the
27   Debtors’ concession that they had failed both to make any
28

                                      3
 1   postpetition payments to SunTrust and to pay property taxes.2
 2   The bankruptcy court stated:
 3
          I’m having a hard time finding that this creditor is
 4        adequately protected when your clients are not
          servicing this debt post-petition, and you believe the
 5        property is not worth enough to cover the amount of
          their claim. Why isn’t that cause to grant this
 6        motion?
 7   Hr’g Tr. (June 4, 2015) at 4:14-19.
 8   While this comment clearly focused on the lack of either equity
 9   or debt service, the bankruptcy court also referenced the other
10   problems creating risk for Suntrust including construction
11   issues and liens.   After the parties presented their arguments,
12   the matter was taken under submission.
13        The bankruptcy court subsequently entered an order granting
14   stay relief on June 9, 2015.   It found that cause existed to
15   grant the request for relief under § 362(d)(1)3 based on the
16   Debtors’ concession that they were not making postpetition
17   payments to SunTrust and that there was no equity in the
18   Property.   The bankruptcy court determined that the Debtors had
19   failed to offer any evidence on the anticipated completion date
20   of the construction project and that they had failed to address
21   the substantial administrative and zoning hurdles necessary to
22   complete the project.   And it found that,
23        More importantly, Debtors offer no evidence as to the
          amount by which the [P]roperty’s value will be
24        enhanced by completion of the construction project, if
25
          2
             The Debtors subsequently paid real property taxes
26
     accruing postpetition.
27        3
             The bankruptcy court denied SunTrust’s request for
28   relief under § 362(d)(2).

                                     4
 1        and when that occurs. The fact that there is
          generally a rising real estate market in the Bay Area
 2        does not mean this property, with its unfinished,
          long-delayed construction project, has risen in value
 3        as the Debtors suggest. Ultimately, Debtors offer no
          evidence that the completion of the construction
 4        project will actually enhance the [P]roperty’s value
          in any meaningful way.
 5
 6   Dkt. No. 73 at 2.
 7   The bankruptcy court’s statements on the record at the hearing
 8   and in its order, thus, make clear that in determining that
 9   cause existed, it appropriately emphasized the lack of value in
10   the Property necessary to protect SunTrust against reasonably
11   feared potential harms.
12        The bankruptcy court’s stay relief, however, was
13   conditional.   Its order provided that the Debtors could stay
14   termination of the stay by making monthly payments to SunTrust
15   in the amount of $9,100 beginning with payment that same month.
16   If the Debtors failed to timely make the monthly payments,
17   SunTrust was entitled to advise the bankruptcy court, which
18   would then enter an order dissolving the stay without further
19   notice or hearing.
20        The Debtors did not appeal from the stay relief order, and
21   it became final and nonappealable on June 23, 2015.
22        Instead, on August 12, 2015, the Debtors moved for
23   reconsideration of the stay relief order.   The record as a
24   whole, including documents and argument on appeal, makes clear
25   that they moved for relief under Civil Rule 60(b)(2) - newly
26   discovered evidence.   They argued that the value of the Property
27   had increased during the pendency of the case and, thus, that
28   there was no diminution of value and no failure of adequate

                                     5
 1   protection.   In doing so, they repeated a factual assertion
 2   generally made in connection with the stay relief motion, but
 3   they now provided more specific evidence.
 4        The Debtors also, however, more directly attacked the
 5   bankruptcy court’s legal basis for the stay relief order and
 6   argued that the condition in the stay relief order was directly
 7   at odds with United Savings Association of Texas v. Timbers of
 8   Inwood Forest Associates, Ltd., 484 U.S. 365 (1988), because
 9   SunTrust was not entitled to interest payments as an
10   undersecured creditor.
11        Finally, in the alternative, they alleged error in the
12   calculation of the stay relief order payment and requested as
13   alternative relief that the bankruptcy court recalculate the
14   payment it required as a condition to continuing the stay.     The
15   Debtors argued that the bankruptcy court used the wrong interest
16   rate in calculating the stay relief order payment.   Thus, they
17   asserted that the correct monthly payment amount was $4,834.38,
18   rather than the $9,100 imposed by the stay relief order.
19        To support their reconsideration motion, the Debtors
20   attached the declaration of Steven Roulac, a CPA and consultant
21   retained to give an opinion on postpetition changes in Property
22   value.   Roulac opined that the Property’s value was higher in
23   July 2015 than it was in December 2014; Roulac, however, did not
24   assign a precise value to the Property.   Further, he expressly
25   stated that he did not undertake an independent investigation of
26   the intangible factors that might have an impact on value;
27   instead, he relied on the Debtor-husband who told him that:
28   “[H]e had no information that the [P]roperty had become either

                                     6
 1   more or less valuable as a consequence of any change in
 2   intangible factors.”   Dkt. No. 100 at 19.
 3        At the hearing, the bankruptcy court ruled that the Debtors
 4   had not met their burden of showing that new evidence existed
 5   such that relief from the stay relief order was warranted under
 6   Civil Rule 60(b)(2).   It, thus, denied their motion for
 7   reconsideration as to the appropriateness of stay relief itself
 8   but agreed to the Debtors’ alternate request and reduced the
 9   conditional monthly payment amount to $4,834.38.
10        Following the bankruptcy court’s entry of an order granting
11   in part and denying in part the Debtors’ motion for
12   reconsideration, the Debtors’ filed a notice of appeal, stating
13   that they were appealing from both the stay relief order and the
14   reconsideration order.
15                               JURISDICTION
16        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
17   §§ 1334 and 157(b)(2)(A) and (G).      We have jurisdiction under
18   28 U.S.C. § 158.
19                                  ISSUE
20        Whether the bankruptcy court abused its discretion in
21   denying in part the Debtors’ motion for reconsideration.
22                            STANDARD OF REVIEW
23        We review the bankruptcy court’s denial of a motion for
24   reconsideration for an abuse of discretion.      Weiner v. Perry,
25   Settles & Lawson, Inc. (In re Weiner), 161 F.3d 1216, 1217 (9th
26   Cir. 1998).   A bankruptcy court abuses its discretion if it
27   applies the wrong legal standard, misapplies the correct legal
28   standard, or if its factual findings are illogical, implausible,

                                      7
 1   or without support in inferences that may be drawn from the
 2   facts in the record.   See TrafficSchool.com, Inc. v. Edriver
 3   Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v.
 4   Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
 5        We may affirm the decision of the bankruptcy court on any
 6   basis supported by the record.    See Hooks v. Kitsap Tenant
 7   Support Servs., Inc., 816 F.3d 550, 554 (9th Cir. 2016).
 8                              DISCUSSION4
 9   A.   Scope of Appeal
10        After the filing of the notice of appeal, Judge Taylor
11   issued an order stating that it appeared, based on the timing,
12   that the scope of appeal was limited to the reconsideration
13   order.   The order invited the parties to discuss the issue in
14   SunTrust’s responsive brief and the Debtors’ reply brief.
15        SunTrust argues that Rule 8002(b)(1)(D) limits review only
16   to the reconsideration order.    It contends that the notice of
17   appeal was effective both as to the stay relief order and the
18   reconsideration order only if the Debtors filed their motion for
19   reconsideration within 14 days of entry of the stay relief
20   order.   SunTrust points out that they did not do so.   Nor did
21
22
23        4
             The BAP Clerk of Court previously issued an order
24   regarding potential mootness based on the continuing conditional
     requirement in the stay relief order that the Debtors make
25   monthly payments to SunTrust. Judge Faris then issued an order
     deeming the mootness inquiry satisfied. As of the date of this
26   decision, SunTrust has not advised the Panel of any payment
27   default under the stay relief order and, thus, we presume that
     the Debtors have continued to make the requisite monthly
28   payments.

                                      8
 1   they file a motion for extension pursuant to Rule 8002(d).5
 2        The Debtors do not disagree with SunTrust; they assert that
 3   the finality of the stay relief order “is of little practical
 4   significance to the resolution of this appeal.”   Instead, the
 5   Debtors contend that because the issues on appeal are legal in
 6   nature, the Panel’s review of the reconsideration order is de
 7   novo, the same “as would be involved if the [stay relief] order
 8   were reviewed.”
 9        We agree that only the reconsideration order is properly
10   before us on appeal.   Rule 8002 requires that an appellant file
11   a notice of appeal within 14 days of entry of the order being
12   appealed.   A motion to reconsider under Civil Rule 60(b) may
13   toll the time to appeal, but only if it is filed within the
14   14-day period.
15        Here, 65 days passed between the time that the bankruptcy
16   court entered the stay relief order and the Debtors filed the
17   motion for reconsideration.   The motion, thus, did not toll the
18   time for appeal as to the stay relief order.   As even the
19   Debtors concede, the only issue on appeal is whether the
20   bankruptcy court abused its discretion in denying, in part,
21   their motion for reconsideration.
22   B.   The bankruptcy court did not abuse its discretion in
23        denying, in part, the Debtors’ motion for reconsideration.
24        Civil Rule 60(b), made applicable through Rule 9024,
25   provides that the bankruptcy court may relieve a party from an
26
          5
27           The bankruptcy court could not grant such an extension
     as the rule expressly excludes extensions with respect to orders
28   granting stay relief. See Fed. R. Bankr. P. 8002(d)(2)(A).

                                     9
 1   order for the following reasons:
 2        (1)   mistake, inadvertence, surprise, or excusable
                neglect;
 3        (2)   newly discovered evidence that, with reasonable
                diligence, could not have been discovered in time
 4              to move for a new trial under [Civil] Rule 59(b);
          (3)   fraud (whether previously called intrinsic or
 5              extrinsic), misrepresentation, or misconduct by
                an opposing party;
 6        (4)   the judgment is void;
          (5)   the judgment has been satisfied, released or
 7              discharged; it is based on an earlier judgment
                that has been reversed or vacated; or applying it
 8              prospectively is no longer equitable; or
          (6)   any other reason that justifies relief.
 9
10        On appeal, the Debtors first argue that the bankruptcy
11   court deprived them of the opportunity to present evidence in
12   opposition to SunTrust’s motion for stay relief.    They then
13   argue that the bankruptcy court abused its discretion in
14   granting stay relief.    As the stay relief order is final and
15   nonappealable, we do not consider these arguments.
16        We note, however, that contrary to the Debtors’ argument,
17   neither the stay relief motion nor the stay relief order were
18   inconsistent with Local Rule 4001-1.    That rule provides for a
19   preliminary hearing in relation to motions for relief from stay.
20   As the Debtors point out, it also provides that a debtor is not
21   required to, but may, file a declaration for a preliminary
22   hearing for stay relief.    LBR 4001-1(f) (Bankr. N.D. Cal.).
23        Nothing in this rule, however, mandates that the bankruptcy
24   court hold an evidentiary hearing.    Indeed, such an
25   interpretation would contravene the rule that a stay relief
26   hearing is intended to be a summary proceeding.    See Veal v. Am.
27   Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 914-15
28   (9th Cir. BAP 2011).    The bankruptcy court determined that an

                                      10
 1   evidentiary   hearing was not necessary.   Nothing in the record
 2   suggests an error in this regard, but if one existed it was
 3   waived when the Debtors failed to appeal from the stay relief
 4   order.
 5        Save for one or two references in the facts section and in
 6   the conclusion section of their brief, the Debtors do not
 7   reference their motion for reconsideration or Civil Rule 60(b)
 8   directly, let alone discuss why the bankruptcy court abused its
 9   discretion in denying, in part, that motion.    The Debtors, thus,
10   waived review of the bankruptcy court’s Civil Rule 60(b)
11   determination.   As that is the only issue on appeal, we may
12   affirm on that basis alone.
13        Further, if we undertake a review, we discern no basis for
14   reversal.
15        At the outset, we note that the bankruptcy court, in
16   effect, granted the relief requested by the Debtors in their
17   motion for reconsideration.    The motion requested that the
18   bankruptcy court vacate the stay relief order and either
19   (1) deny SunTrust’s stay relief motion or schedule an
20   evidentiary hearing; or (2) “enter a new order predicating
21   continuance of the [] [s]tay on periodic payments of $4,834.38,
22   although doing so would be inconsistent with the Supreme Court’s
23   decision in Timbers.”   The bankruptcy court, in fact, employed
24   the second option and decreased the monthly payment amount to
25   $4,834.38.    The condition of payment has the effect of keeping
26   the stay in place so long as the condition continues to be met.
27        As to the merits, it is improper for a party seeking relief
28   from an order under Civil Rule 60(b) to raise legal arguments or

                                      11
 1   allege new facts that could have been raised at the prior
 2   hearing or to rehash arguments already presented to the
 3   bankruptcy court.    See Fadel v. DCB United LLC (In re Fadel),
 4   492 B.R. 1, 18 (9th Cir. BAP 2013).      Here, the bankruptcy court
 5   determined that the motion to reconsider improperly rehashed the
 6   same arguments made by the Debtors in opposing the stay relief
 7   motion.   The record confirms that this was true as to the
 8   adequate protection issue.
 9        The Debtors argued in their opposition to the stay relief
10   motion that SunTrust was adequately protected by the value of
11   the Property in spite of the lack of equity as a result of the
12   rising real estate market in the Bay Area and anticipated
13   completion of the construction on the Property.      They reiterated
14   this argument at the hearing for stay relief.      The Debtors then
15   repeated this argument in their motion for reconsideration and
16   supported it with evidence that the market was generally rising
17   and that it was reasonable to assume that the value of the
18   Property was also rising.    On this record, the bankruptcy court
19   correctly determined that the Debtors simply sought to rehash
20   the same arguments made in connection with the stay relief
21   motion.
22        We further note that the allegedly new evidence was far
23   from definitive.    The expert noted that intangible factors
24   related to the Property could impact its value and then
25   acknowledged that he had not independently investigated whether
26   such intangible factors existed.      Instead, he relied on the
27   Debtor-husband’s representations.      In substance, as a result,
28   this evidence essentially duplicated the generalized assertion

                                      12
 1   of a rising market made at trial and found wanting by the
 2   bankruptcy court at that time.
 3        The Debtors also argue, briefly, that the reconsideration
 4   order, like the stay relief order, is directly at odds with the
 5   Bankruptcy Code and United Savings Association of Texas v.
 6   Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365 (1988).
 7   They then attack the bankruptcy court’s finding of cause to
 8   grant stay relief under § 362(d)(1).     As stated, the stay relief
 9   order is not properly before us on appeal, and the Debtors have
10   not placed their argument within the framework of Civil
11   Rule 60(b).   Thus, we do not address this issue except to note
12   that in granting stay relief “for cause,” the bankruptcy court
13   stated multiple concerns and in no way limited itself to an
14   analysis based on the increase of debt through interest accrual
15   on an undersecured claim – the issue addressed in Timbers.
16                               CONCLUSION
17        Based on the foregoing, we AFFIRM.
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