Court Opinion

ID: 4351760
Source: CourtListenerOpinion
Date Created: 2018-12-19 01:01:12.301936+00
Date Added: 2024-06-11T14:37:18.689343
License: Public Domain

FILED
                                                                             DEC 18 2018
                           NOT FOR PUBLICATION
                                                                        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. CC-18-1097-TaLS

BENZEEN INC.,                                        Bk. No. 1:17-bk-13113-MT

                    Debtor.

BENZEEN INC.,

                    Appellant,

v.                                                    MEMORANDUM*

JP MORGAN CHASE BANK, NATIONAL
ASSOCIATION,

                    Appellee.

                 Argued and Submitted on November 29, 2018
                              at Pasadena, CA

                             Filed – December 18, 2018

               Appeal from the United States Bankruptcy Court
                    for the Central District of California

         *
        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 8024-1.
          Honorable Maureen A. Tighe, Bankruptcy Judge, Presiding

Appearances:        Michael R. Sment argued for appellant Benzeen Inc.;
                    Matthew Bryan Learned of McCarthy & Holthus, LLP
                    argued for appellee JP Morgan Chase Bank, National
                    Association.

Before: TAYLOR, LAFFERTY, and SPRAKER, Bankruptcy Judges.

                                 INTRODUCTION

      JP Morgan Chase Bank, N.A. (“Lender”) sought and obtained stay

relief under § 362(d)(1) and (d)(4)1 as to real property owned by chapter 11

debtor in possession Benzeen Inc. (“Debtor”). On appeal, Debtor argues, in

part, that the bankruptcy court failed to make adequate findings of fact and

conclusions of law. Lender subsequently foreclosed on the Property and

argues that this moots the appeal. We agree with Lender that the

foreclosure moots the appeal as to the § 362(d)(1) relief; we also agree with

Debtor that the bankruptcy court did not make adequate findings of fact

and conclusions of law as to the § 362(d)(4) relief.

      Accordingly, we DISMISS the appeal in part for lack of jurisdiction as

to the § 362(d)(1) relief and VACATE and REMAND as to the § 362(d)(4)

      1
        Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.

                                           2
relief.

                                      FACTS

          The bankruptcy court did not enter detailed findings of fact and

conclusions of law. In the main, the parties do not dispute the general facts.

          The appeal concerns real property located in Los Angeles, California

(the “Property”). In 2005, a third party individual obtained a $2,340,000

loan secured by the Property. Washington Mutual Bank, FA was the

original lender, but it subsequently assigned the deed of trust to Lender.

          Debtor acquired the Property in 2010 and subject to Washington

Mutual’s senior lien. Thereafter, the Property was encumbered or affected

by a series of documents apparently engineered, at least in part, by

MMM Property Management, Inc. (“MMM”), a company Debtor

contracted with to help “work-out” the Property:

!         In July 2012, a deed of trust and assignment of rents was recorded to

          secure an alleged $25,000 debt in favor of Tiffany Yang as the

          beneficiary; MMM was the trustee; Debtor’s principal executed the

          document.

!         In September 2012, a similar deed of trust and assignment of rents

          was recorded to secure an alleged $25,000 debt in favor of Sally

          Johnson and Vladimir Pyagay as the beneficiaries; MMM was the

          trustee; Debtor’s principal executed the document.

!         In April 2013, a deed of trust and assignment of rents was recorded to

                                          3
      secure an alleged $25,000 debt in favor of Angela Wilson and Donald

      Lewis as the beneficiaries; MMM was the trustee; Debtor’s principal

      executed the document.

!     In March 2014, a deed of trust and assignment of rents was recorded

      to secure an alleged $30,000 debt in favor of Joseph Young as

      beneficiary; MMM was the trustee; Debtor’s principal executed the

      document.

!     In December 2014, a short form deed of trust and assignment of rents

      was recorded to secure an alleged $25,000 debt in favor of Foreman

      Financial, Inc. as beneficiary; Debtor’s principal executed the

      document.

      In May 2015, a grant deed was recorded; in it, Debtor granted itself a

30% interest in the Property and Riverside Investors, LLC a 70% interest in

the Property.

      In March 2016, Debtor filed a short-lived chapter 11 bankruptcy

petition to avoid “an imminent foreclosure.”

      In November 2017, Debtor filed its current chapter 11 bankruptcy

case and listed a fee simple interest in the Property on Schedule A. It later

scheduled Lender as having a $3,238,344 secured interest in the Property,

which it valued at $3,600,000.

      In February 2018, Lender filed a motion seeking relief from the

automatic stay under § 362(d)(1) asserting that the case was filed in bad

                                       4
faith, and under § 362(d)(4). Lender alleged that nearly all of the

individuals or entities listed above (Yang, Johnson and Pyagay, Wilson and

Lewis, Young, and Foreman Financial, Inc.) filed bankruptcy, causing an

automatic stay to affect the Property. It also alleged, consistent with the

statute, that the present bankruptcy petition was part of a scheme to delay,

hinder, or defraud it, involving the transfer of all or part ownership of the

Property without its consent or court approval.

      Debtor opposed. It argued that: it acquired the Property with the

understanding that the senior lender would provide work-out options;

when the lender did not do so, Debtor turned to MMM; it did not know

about MMM’s use of bankruptcy tactics; it terminated the relationship in

February 2014 when MMM failed to perform; and it twice more attempted

to satisfy Lender’s lien, once through an attempted sale to Foreman

Financial Inc. and then another attempted sale to Riverside Investors LLC.

      At the hearing on the stay relief motion, Debtor’s counsel argued that

Debtor’s principal did not know that MMM’s methods involved filing

bankruptcies. The bankruptcy court disagreed, stating: “I don’t find it

credible that the principal of the Debtor didn’t know about these transfers

and didn’t know what was going on. The transfers are fraudulent, and

they’re all executed by the Debtor’s current principal.” Hr’g Tr. (Mar. 21,

2018) 3:21–25.

      The bankruptcy judge eventually stated that she was granting the

                                       5
motion, not waiving the Rule 4001(a)(3) 14-day stay, and clarified that relief

included relief under § 362(d)(4).

       The bankruptcy court entered an order granting stay relief under

§ 362(d)(1) and (d)(4) in March 2018 (the “Order”). Appellant timely

appealed.

       Subsequently, the bankruptcy court entered an order dismissing

Debtor’s bankruptcy case; Debtor has appealed that order. Thereafter, the

Property was sold at a public foreclosure auction in July 2018; Lender

obtained the Property by credit bid.2

                                    JURISDICTION

       The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(F). Subject to the discussion below, we have jurisdiction under

28 U.S.C. § 158.

                                         ISSUES

       Do we have jurisdiction over the Order to the extent it granted relief

under § 362(d)(1)?

       Did the bankruptcy court abuse its discretion in granting

§ 362(d)(4) relief?

                              STANDARD OF REVIEW

       We review our own jurisdiction de novo. In re Ellis, 523 B.R. at 677.

       2
        We grant Lender’s motion for judicial notice. See Ellis v. Yu (In re Ellis), 523 B.R.
673, 676–77 (9th Cir. BAP 2014).

                                              6
We review for an abuse of discretion a decision to grant in rem relief under

§ 362(d)(4). Id.

                                DISCUSSION

      In its opening brief, Debtor identifies 26 issues on appeal; but we only

consider those it supports with argument. Navajo Nation v. U.S. Forest Serv.,

535 F.3d 1058, 1079 n.26 (9th Cir. 2008) (“It is well-established that a bare

assertion in an appellate brief, with no supporting argument, is insufficient

to preserve a claim on appeal.”).

      A.     The appeal of the Order’s § 362(d)(1) relief is moot.

      Lender argues that the appeal is constitutionally and equitably moot

because the underlying bankruptcy case was dismissed and because the

Property was sold at a nonjudicial foreclosure.

      We lack jurisdiction over a moot appeal. In re Ellis, 523 B.R. at 677. “In

bankruptcy, mootness comes in a variety of flavors: constitutional,

equitable, and statutory.” Clear Channel Outdoor Inc. v. Knupfer (In re PW,

LLC), 391 B.R. 25, 33 (9th Cir. BAP 2008). “Constitutional mootness is

jurisdictional and derives from the case-or-controversy requirement of

Article III.” Castaic Partners II, LLC v. DACA-Castaic, LLC (In re Castaic

Partners II, LLC), 823 F.3d 966, 968 (9th Cir. 2016) (citing In re PW, LLC, 391

B.R. at 33). And equitable mootness considers whether “changes to the

status quo following the order being appealed make it impractical or

inequitable to ‘unscramble the eggs.’ ” Id. (quoting In re PW, LLC, 391 B.R.

                                        7
at 33).3 The test for appellate mootness 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.” Id. at 968–69.

      First, dismissal of the underlying bankruptcy case moots an appeal

from a stay relief order, but only if the dismissal is not appealed. Id. at 969.4

Here, the underlying bankruptcy case was dismissed; but Debtor appealed

the dismissal order—and briefing in that appeal proceeds apace. See BAP

No. 18-1185. So this appeal is not constitutionally moot because we have

the power to restore the bankruptcy proceeding and reverse the order

granting stay relief.

      The nonjudicial foreclosure, however, renders the appeal moot as to

the § 362(d)(1) relief. The Ninth Circuit has “generally held that where an

automatic stay is lifted, the debtor’s failure to obtain a stay pending appeal

renders an appeal moot after assets in which the creditor had an interest

      3
        Statutory mootness refers to 11 U.S.C. § 363(m) and does not apply here because
the Property was sold at a foreclosure sale. See id. at 968 n.2.
      4
          This is because, once the bankruptcy is dismissed, “neither the goal of a
successful reorganization nor the debtor’s right to the automatic stay continues to
exist.” Id. (quoting Olive St. Inv., Inc. v. Howard Sav. Bank, 972 F.2d 214, 216 (8th Cir.
1992)). And “[a]bsent an appeal from the dismissal orders, we have no power to restore
the bankruptcy proceeding.” Id. As a result, “it no longer serves any purpose to
determine whether the bankruptcy court properly lifted the automatic stay; the appeal
has become moot.” Id. (quoting Olive St., 972 F.2d at 216). Similarly, an appeal of a stay
relief order becomes moot when the debtor receives a chapter 7 discharge. See In re Ellis,
523 B.R. at 678.

                                            8
are sold.” Sun Valley Ranches, Inc. v. The Equitable Life Assurance Soc’y (In re

Sun Valley Ranches, Inc.), 823 F.2d 1373, 1374 (9th Cir. 1987). In Sun Valley

Ranches, however, the Ninth Circuit identified a “narrow exception to this

rule, whe[n] real property is sold to a creditor who is a party to the appeal.”

Id. at 1375. In those cases “it would not be impossible for the Court to

fashion some sort of relief.” Id. (quoting Crown Life Ins. v. Springpark Assocs.

(In re Springpark Assocs.), 623 F.2d 1377, 1379 (9th Cir. 1980)).

      This exception, Debtor contends, applies here. Lender concedes that it

acquired the Property; instead, it argues that the Sun Valley Ranches

exception is distinguishable because it involved a right of redemption,

while none exists in the present case. Lender is correct.

      The Ninth Circuit has expressly limited Sun Valley Ranches’s

exception to cases where there is a statutory right of redemption. Onouli-

Kona Land Co., v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d

1170, 1173 (9th Cir 1988) (“Accordingly, we endorse In re Sun Valley’s

suggested limit to the mootness exception. The exception is available when

real property is sold to a creditor who is a party to the appeal, but only

when the sale is subject to statutory rights of redemption.”). Debtor points

to no right of redemption. As a result, the foreclosure sale renders moot

Debtor’s appeal of the stay relief order under § 362(d)(1).

      The appeal is not entirely moot, however. The Order granted

§ 362(d)(4) relief. Section 362(d)(4) was added to the Code in 2005; it

                                        9
provides secured creditors “special relief . . . .” First Yorkshire Holdings, Inc.

v. Pacifica L 22, LLC (In re First Yorkshire Holdings, Inc.), 470 B.R. 864, 870

(9th Cir. BAP 2012). Section 362(d)(4) “permits the bankruptcy court to

grant in rem relief from the automatic stay in order to address schemes

using bankruptcy to thwart legitimate foreclosure efforts through one or

more transfers of interest in real property.” Id. If the order is properly

recorded, it is binding in any bankruptcy case filed for the next two years.

Id. (citing 11 U.S.C. § 362(d)(4), (b)(20)). In short, a § 362(d)(4) order “has

serious implications.” Alakozai v. Citizens Equity First Credit Union (In re

Alakozai), 499 B.R. 698 (9th Cir. BAP 2013). Section 362(d)(4) relief applies

against the debtor and “every non-debtor, co-owner, and subsequent

owner of the property.” Id.

      At oral argument, we asked about Debtor’s standing to appeal the

§ 362(d)(4) relief, as the nonjudicial foreclosure eliminated their ownership

interest in the Property. Lender’s counsel stated that Lender remained

interested in the in rem relief: it was concerned Debtor might file

bankruptcy to stay an unlawful detainer action. From this, we deduce that

Debtor remains in possession of the Property and that Lender has not

prosecuted an unlawful detainer action to judgment. So Debtor may

possess an interest in the Property that could, in the absence of § 362(d)(4)

relief, be protected by the automatic stay. Cf. Eden Place, LLC v. Perl (In re

Perl), 811 F.3d 1120, 1128–30 (9th Cir. 2016) (holding that entry of unlawful

                                         10
detainer judgment and writ of possession completely divests debtor of all

legal and equitable possessory rights “that would otherwise be protected

by the automatic stay”). As a result, the appeal is not moot as to the in rem

relief, and we have jurisdiction over the appeal because the § 362(d)(4)

relief has continuing vitality against Debtor: if we reverse the § 362(d)(4)

order, it would not, if recorded, be binding in a future bankruptcy case

filed before entry of an unlawful detainer judgment.

      In sum, the nonjudicial foreclosure renders the appeal of the

§ 362(d)(1) relief moot; but we have jurisdiction over the § 362(d)(4)

component of the Order.

      B.    We vacate and remand for further findings of fact and
            conclusions of law concerning the § 362(d)(4) relief.

      We now turn to the merits of the § 362(d)(4) component of the Order.

Debtor argues both that Lender did not present a prima facie case for

§ 362(d)(4) relief and that the bankruptcy court failed to make the required

findings of fact and conclusions of law. This invokes Civil Rule 52.

      A stay relief motion “is a contested matter under Rule 9014 . . . .” In re

First Yorkshire Holdings, Inc., 470 B.R. at 871. In a contested matter, the

“bankruptcy court must render findings of fact and conclusions of law as

required by Civil Rule 52(a) (incorporated by Rules 7052 and 9014(c)).”

Rediger Inv. Corp. v. H Granados Commc’ns, Inc. (In re H Granados Commc'ns,

Inc.), 503 B.R. 726, 732 (9th Cir. BAP 2013). If there are not complete

                                        11
findings, “we may vacate a judgment and remand the case to the

bankruptcy court to make the required findings.” In re First Yorkshire

Holdings, Inc., 470 B.R. at 871. That said, we need not reverse, even if the

bankruptcy court rules without articulating its findings, if the record

provides us “with a full, complete, and clear view of the issues on appeal.”

In re H Granados Commc’ns, Inc., 503 B.R. at 732.

      To obtain § 362(d)(4) relief, a creditor must show three elements:

      First, debtor’s bankruptcy filing must have been part of a
      scheme. Second, the object of the scheme must be to delay,
      hinder, or defraud creditors. Third, the scheme must involve
      either (a) the transfer of some interest in the real property
      without the secured creditor’s consent or court approval, or (b)
      multiple bankruptcy filings affecting the property.

In re First Yorkshire Holdings, Inc., 470 B.R. at 870. Correspondingly, for “the

court to grant relief under § 362(d)(4), and thus trigger two years of

prospective relief as to the subject real property, it must affirmatively find

that the three elements above are present.” Id. at 870–71.

      Here, the bankruptcy court did not set out separate findings of fact

and conclusions of law, nor did it affirmatively find the three elements

required for § 362(d)(4) relief. Lender’s motion does not assist us; it is not a

picture of legal clarity. It never articulates how (or even that) the alleged

bankruptcy filings delayed, hindered, or defrauded it; it simply states that

automatic stays went into effect on the Property. According to Lender’s

declaration, a notice of sale was not recorded until September 2017, well

                                       12
after the relevant transfers. Adding to the confusion, Lender’s declaration

states that Lender foreclosed on the Property in July 2010 and recorded a

Trustee’s deed upon sale in November 2010. If that is the case, Lender

would be the Property’s owner and not, as our precedent indicates, a

secured creditor entitled to § 362(d)(4) relief. In re Ellis, 523 B.R. at 679–80.

      As a result, “it is not clear without further findings from the

bankruptcy court that [Lender] carried its burden of proof on all of the

elements for relief from stay under § 362(d)(4).” In re First Yorkshire

Holdings, Inc., 470 B.R. at 871. Findings “are particularly important here

because of the in rem nature of the [Order] and the detrimental effect it has

on parties besides [Debtor].” Id. We thus VACATE the Order’s grant of

§ 362(d)(4) relief and REMAND so the bankruptcy court may make the

required findings supporting the relief.5

                                  CONCLUSION

      Based on the foregoing, we DISMISS the appeal in part for lack of

jurisdiction because it is moot as to the § 362(d)(1) relief and VACATE the

Order to the extent it granted § 362(d)(4) relief and REMAND for further

proceedings, if appropriate.

      5
        We acknowledge that the underlying factual circumstances may change,
obviating the need for the bankruptcy court to make further findings—for instance,
Lender may no longer seek § 362(d)(4) relief.

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