Court Opinion

ID: 9386823
Source: CourtListenerOpinion
Date Created: 2023-04-13 19:01:13.559035+00
Date Added: 2024-06-11T17:18:08.804994
License: Public Domain

FILED
                                                                                   APR 12 2023
                          NOT FOR PUBLICATION                                  SUSAN M. SPRAUL, CLERK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 Nos. SC-22-1008-GFB
 RAMIN POURTEYMOUR,                                           SC-22-1009-GFB
             Debtor.                                          SC-22-1010-GFB
                                                              (Related Appeals)
 FIRST FOUNDATION BANK,
             Appellant,                              Bk. No. 20-05522-CL11

 v.                                                  MEMORANDUM*
 RAMIN POURTEYMOUR,
             Appellee.

               Appeal from the United States Bankruptcy Court
                     for the Southern District of California
           Christopher B. Latham, Chief Bankruptcy Judge, Presiding

Before: GAN, FARIS, and BRAND, Bankruptcy Judges.

                                 INTRODUCTION

      Appellant First Foundation Bank (“FFB”) appeals the bankruptcy

court’s order (the “Dismissal Order”) dismissing the chapter 11 1 case of

debtor Ramin Pourteymour (“Debtor”). FFB also appeals the orders

denying its motion to compel rejection of a postpetition lease and its

       *
         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.
       1 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532.
motion to compel Debtor to account for and turn over all net rents received

from a property in which FFB held a security interest.

      FFB does not contest the court’s finding of “cause” under § 1112(b),

and it does not directly challenge the court’s determination that dismissal,

rather than conversion, was in the best interests of creditors and the estate.

Instead, it argues that the Dismissal Order violated the Supreme Court’s

holding in Czyzewski v. Jevic Holdings Corp., 137 S. Ct. 973 (2017) (“Jevic”),

because it expressly or implicitly provided for a structured dismissal which

deviated from the ordinary priority scheme under the Bankruptcy Code.

      The Dismissal Order clearly states that dismissal is not conditioned

on any payment to creditors and operates, as directed by § 349, to return

the parties to the prepetition status quo. Neither the bankruptcy court’s

statements made at the hearing—which FFB quotes out of context—nor

Debtor’s conduct after dismissal transforms the express ruling of the court

into an implied structured dismissal.

      The bankruptcy court correctly applied the law in dismissing the

case, and FFB’s motions to compel were moot upon dismissal. We

AFFIRM.

                                        2
                                        FACTS 2

A.    Prepetition events and Debtor’s bankruptcy

      FFB made three loans to Debtor to purchase, refinance, or renovate

two parcels of real estate in La Jolla, California: a property located on

Blackgold Road (“Blackgold”) and a property located on Box Canyon Road

(“Box Canyon”). After a disruption in rental income, Debtor ceased

payments on the loans, and in November 2020, he filed a chapter 11

petition to prevent foreclosure.

      Debtor’s schedules indicate he was a self-employed real estate

investor. His principal assets consisted of: (1) Blackgold, which he valued

at $3,735,000; (2) Box Canyon, which he valued at $2,500,000; (3) a

condominium, which he valued at $340,000; and (4) financial assets,

including membership interests in several real estate investment LLCs,

having a total value of $1,743,917.04.

      FFB filed four proofs of claim: (1) a senior claim for $4,572,080.51

secured by Blackgold; (2) a junior claim for $3,080,478.33 secured by

Blackgold; (3) a claim for $2,710,104.07 secured by Box Canyon; and (3) an

unsecured claim for $1,419,574.64 based on Debtor’s personal guaranty of a

loan to a real estate LLC.

      2
          We exercise our discretion to take judicial notice of documents electronically
filed in the bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293
B.R. 227, 233 n.9 (9th Cir. BAP 2003).
                                            3
      Debtor obtained an order authorizing use of cash collateral generated

by Blackgold and Box Canyon, and he moved to value the properties for

the purpose of proposing a plan of reorganization. After several months of

litigation, the parties stipulated to value Blackgold at $6,000,000 and Box

Canyon at $3,710,035.

      In July 2021, FFB filed a motion for stay relief to foreclose on

Blackgold. The bankruptcy court granted stay relief, and FFB conducted a

non-judicial foreclosure, taking title to Blackgold through a credit bid of its

junior lien.

B.    FFB’s motions to compel turnover and to compel rejection of a
      postpetition lease

      After taking title to Blackgold, FFB filed a motion to compel Debtor to

account for and turn over all net rents generated by the property. FFB

alleged that Debtor had been collecting monthly rents of at least $28,500

and was holding approximately $265,000 in his debtor in possession

account (“DIP Account”) at the time of the foreclosure. FFB argued that

pursuant to § 542 it was entitled to a detailed accounting of all rents

generated from Blackgold and an order requiring Debtor to pay those rents

to FFB.

      FFB also filed a motion to compel rejection of Debtor’s postpetition

lease of Blackgold, which it claimed Debtor concealed. It argued the lease

was voidable under § 549 because Debtor did not obtain court approval to

lease the property under § 365.

                                       4
      In opposition, Debtor argued that FFB was not entitled to the DIP

Account funds because FFB foreclosed its junior lien, and the senior deed

of trust did not expressly grant FFB a security interest in the rents. Debtor

maintained that FFB lacked standing to assert an action under § 549, and it

was attempting to circumvent California law which required a post-

foreclosure property owner to honor the terms of a residential lease

agreement.

C.    Debtor’s motion to dismiss and the court’s rulings

      After FFB foreclosed, Debtor filed a motion to dismiss the case. He

argued that cause existed to dismiss the case under § 1112(b) based on his

loss of Blackgold, which constituted a material change of circumstances

that impacted his ability to fashion an equitable plan of reorganization.

Debtor asserted that dismissal was in the best interests of creditors because

it would avoid further expense, and if the case were dismissed, Debtor

would pay all claims over time. He also suggested that liquidation of assets

under chapter 7 would result in additional tax liability resulting from

depreciation recapture. Debtor proposed that the dismissal order include

language obligating him to use the DIP Account funds to pay property

taxes, administrative fees, and prepetition arrears on secured debts as a

condition of dismissal.

      The United States Trustee (“UST”) opposed Debtor’s motion and

argued that Debtor failed to demonstrate dismissal was in the best interests

of creditors and the estate because his motion lacked a clear and complete

                                       5
liquidation analysis. The UST suggested that conversion would benefit

creditors because it would allow a neutral trustee to evaluate, and possibly

settle, potential litigation against FFB, and realize the true value of Debtor’s

various property interests.

      FFB also opposed Debtor’s motion, arguing that Debtor’s loss of

Blackgold was irrelevant to whether the case should be dismissed because

it would have contributed little to Debtor’s reorganization efforts. FFB also

maintained that Debtor failed to demonstrate that dismissal was in the best

interests of creditors, and creditors would rather receive distributions from

an orderly liquidation.

      In reply, Debtor provided a table of assets and debts showing that

liquidation under chapter 7 would result in payment of 59% of unsecured

claims, while dismissal would result in full payment. Debtor suggested he

could withdraw his share of cash from his LLC interests and had access to

$2,000,000 in loans from his LLC partners. He proposed as a condition of

dismissal to use DIP Account funds and non-estate assets to cure the

arrearage on Box Canyon, pay administrative claims, and pay all current

unsecured claims immediately upon dismissal.

      On November 8, 2021, the bankruptcy court held a hearing on FFB’s

motions to compel and Debtor’s motion to dismiss. Prior to the hearing, the

court issued tentative rulings indicating it would deny FFB’s motions

because: (1) FFB lacked standing to bring an action under §§ 542, 365 or

                                       6
549; (2) § 365 does not apply to postpetition leases; and (3) Debtor had

authority to lease Blackgold in the ordinary course of business.

      At the hearing, the court stated its intent to adopt the tentative

rulings but decided to delay its decision and consider the motions in the

context of Debtor’s motion to dismiss. Regarding dismissal, the court

expressed concern that Debtor’s statements about obtaining funds and

paying creditors was not substantiated or enforceable. The court continued

the hearing to December 16, 2021, to allow Debtor to prove his access to the

non-estate funds and to file a clear accounting of how those funds would

be disbursed upon dismissal.

      Prior to the continued hearing, Debtor filed a status report and

declaration stating that, in addition to funds in the DIP Account and

Debtor’s operating account, he had borrowed an additional $2,175,000 from

his partners and deposited the non-estate funds in his attorney’s trust

account. He provided a schedule of the current allowed claims he proposed

to pay upon dismissal and a liquidation analysis indicating the likely

distribution to creditors if the case were converted to chapter 7. Debtor

indicated that Farzaneh Berry, an unsecured creditor with a claim for

$702,000, agreed to waive her right to be paid upon dismissal.

     In his status report, Debtor noted that in November 2021, FFB

amended its senior claim against Blackgold to reflect a general unsecured

claim for $1,167,643.18 (the “Disputed FFB Claim”). Debtor filed an

objection to the Disputed FFB Claim and argued that FFB lacked a basis

                                       7
under California law to assert a deficiency claim prior to selling the

property.

      Debtor proposed a structured dismissal that would pay all arrears,

administrative claims, and unsecured creditors other than the Disputed

FFB Claim, and he maintained that the proposal would not violate Jevic

because the Disputed FFB Claim was within the same class as other

unsecured creditors and consequently, no claims would be paid out of

priority. Alternatively, he proposed to reserve FFB’s pro-rata share

pending resolution of his claim objection, which would result in a dividend

to unsecured creditors of 89.8%, and full payment from the reserve if

Debtor prevailed.

      FFB argued both proposed dismissals would violate Jevic. The UST

also expressed concerns about violating the priority scheme of the

Bankruptcy Code and urged the court to decide Debtor’s claim objection

before dismissing the case.

      At the continued hearing, the court expressed concern that Debtor’s

proposals might violate Jevic, and it questioned whether in the absence of

conditioning dismissal on payment creditors’ best interests might still be

served by dismissal rather than conversion. In response to the UST’s

argument that Debtor’s promise to pay all claims upon dismissal could

prove illusory, the court noted that the representations made by Debtor

and his counsel to the court meant something and the court expected they

                                      8
would keep their word. The court took the matter under submission, and

on December 27, 2021, it entered the Dismissal Order.

      The bankruptcy court found cause to dismiss or convert the case

under § 1112(b) based in part on the material change in circumstances

caused by the loss of Blackgold. The court then analyzed, pursuant to

§ 1112(b)(1), whether the interests of creditors and the estate were better

served by appointing a trustee and whether, under § 1112(b)(2), unusual

circumstances existed to warrant neither converting nor dismissing the

case. It decided against both.

      The court then considered the alternatives proposed by Debtor and

the UST. It concluded that both of Debtor’s proposed structured dismissals

would violate either the holding or the spirit of Jevic. The court noted that

the UST’s proposal would likely aid in the decision whether to convert or

dismiss and would avoid violating Jevic, but because of the litigation costs

and added delay, it was not in the best interests of creditors and the estate.

      After ruling out the proposed alternatives, the bankruptcy court

engaged in a balancing test to decide whether to convert or dismiss the

case under § 1112(b). The bankruptcy court applied the factors identified in

Rand v. Porsche Financial Services, Inc. (In re Rand), BAP No. AZ-10-1160-

BaPaJu, 2010 WL 6259960 (9th Cir. BAP Dec. 7, 2010), 3 and determined that

      3  The factors identified in Rand are:
        (1) Whether some creditors received preferential payments, and whether equality
of distribution would be better served by conversion rather than dismissal.
        (2) Whether there would be a loss of rights granted in the case if it were
                                          9
dismissal, rather than conversion, was in the best interests of creditors and

the estate. After dismissing the case, the bankruptcy court entered orders

denying FFB’s motion to compel turnover and its motion to compel

rejection of the lease as moot. FFB timely appealed.

                                    JURISDICTION

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

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                         ISSUES

        Did the bankruptcy court abuse its discretion by dismissing Debtor’s

case?

dismissed rather than converted.
        (3) Whether the debtor would simply file a further case upon dismissal.
        (4) The ability of the trustee in a chapter 7 case to reach assets for the benefit of
creditors.
        (5) In assessing the interest of the estate, whether conversion or dismissal of the
estate would maximize the estate’s value as an economic enterprise.
        (6) Whether any remaining issues would be better resolved outside the
bankruptcy forum.
        (7) Whether the estate consists of a “single asset.”
        (8) Whether the debtor had engaged in misconduct and whether creditors are in
need of a chapter 7 case to protect their interests.
        (9) Whether a plan has been confirmed and whether any property remains in the
estate to be administered.
        (10) Whether the appointment of a trustee is desirable to supervise the estate and
address possible environmental and safety concerns.

In re Rand, 2010 WL 6259960, at *10 n.14 (citing 7 COLLIER ON BANKRUPTCY ¶ 1112.04[7]
(Alan N. Resnick & Henry J. Sommer, eds., 16th ed., 2010)).

                                             10
      Did the bankruptcy court err by denying FFB’s motions to compel

turnover and to compel rejection of a postpetition lease?

                         STANDARDS OF REVIEW

      We review the bankruptcy court’s decision to dismiss a case under

§ 1112(b) for abuse of discretion. See Sullivan v. Harnisch (In re Sullivan), 522

B.R. 604, 611 (9th Cir. BAP 2014). A bankruptcy court abuses its discretion

if it applies an incorrect legal standard or its factual findings are illogical,

implausible, or without support in the record. TrafficSchool.com, Inc. v.

Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

      We review de novo the bankruptcy court’s denial of FFB’s motions to

compel as moot. See Brennan v. Opus Bank, 796 F.3d 1125, 1128 (9th Cir.

2015). Under de novo review, “we consider a matter anew, as if no decision

had been made previously.” Francis v. Wallace (In re Francis), 505 B.R. 914,

917 (9th Cir. 2014).

                                 DISCUSSION

      FFB argues the bankruptcy court erred by dismissing the case

because the Dismissal Order either expressly or impliedly violates Jevic. It

asserts that dismissal was conditioned on Debtor making payments to

some, but not all, unsecured creditors and, although the Dismissal Order

purports to be a straight dismissal, in substance it provides for a structured

dismissal that deviates from the priority scheme under the Bankruptcy

Code. FFB argues that the bankruptcy court should have compelled Debtor

                                        11
to account for and pay to FFB its accumulated rents and should have

compelled Debtor to reject the postpetition lease of Blackgold.

A.    Legal standards under § 1112(b)

      Section 1112(b) provides that on request of a party in interest “the

court shall convert a case under this chapter to a case under chapter 7 or

dismiss a case under this chapter, whichever is in the best interests of

creditors and the estate, for cause . . . .” Section 1112(b)(4) provides a non-

exhaustive list that establishes cause to convert or dismiss, but bankruptcy

courts can consider other factors, and they have broad discretion to

determine what constitutes “cause” under § 1112(b). See In re Sullivan, 522

B.R. at 614.

      Once a bankruptcy court has determined that cause to convert or

dismiss exists, it must apply a “balancing test,” based on the best interests

of creditors and the estate, to decide between conversion and dismissal.

Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 729 (9th Cir.

BAP 2008) (citing Nelson v. Meyer (In re Nelson), 343 B.R. 671, 675 (9th Cir.

BAP 2006)).

B.    The Dismissal Order does not violate Jevic.

      The Bankruptcy Code establishes a basic system of priority which

must be followed under chapter 7, and which may be altered under chapter

11 with consent of affected parties. Jevic, 137 S. Ct. at 979. Because the

priority scheme is fundamental to the operation of the Bankruptcy Code,

                                       12
bankruptcy courts cannot “alter the balance struck by the statute.” Id. at

984, 987 (quoting Law v. Siegel, 571 U.S 415, 427 (2014)).

       In Jevic, the Supreme Court reasoned that chapter 11 foresees three

possible outcomes: (1) a confirmed chapter 11 plan; (2) conversion to

chapter 7; or (3) dismissal of the case, which “aims to return to the

prepetition financial status quo.” Id. at 979. When a bankruptcy court

dismisses a case, property of the estate ordinarily revests in the debtor and

creditors retain their legal remedies. See § 349; Nash v. Kester (In re Nash),

765 F.2d 1410, 1414 (9th Cir. 1985). Although structured dismissals

requiring payment of claims as a condition of dismissal are not prohibited,

the Supreme Court held a bankruptcy court cannot “approve a structured

dismissal that provides for distributions that do not follow ordinary

priority rules without the affected creditors’ consent.” Jevic, 137 S. Ct. at

983.

       Here, the bankruptcy court considered and expressly rejected both of

Debtor’s proposed structured dismissals after determining they would

violate Jevic, and it did not condition dismissal on payment to any creditor.

Instead, the court stated that property of the estate would revest pursuant

to § 349, and it expressly took no position on the parties’ respective

obligations or remedies if Debtor decided to use DIP Account funds to pay

creditors after dismissal. In other words, the Dismissal Order provided for

a straight dismissal.

                                       13
     FFB argues the Dismissal Order contravenes Jevic by not requiring

payment of its unsecured claim upon dismissal because the absolute

priority rule would prevent Debtor from retaining substantial assets

without paying FFB’s claim under a confirmed chapter 11 plan. The

Bankruptcy Code does not impose the same burdens and requirements on

dismissal as confirmation. FFB retained its rights and remedies under state

law and dismissal merely returned the parties to the prepetition financial

status quo.

     FFB alternatively argues that the Dismissal Order provided for an

implied structured dismissal because Debtor confirmed that he would pay

some unsecured creditors even if the Dismissal Order was unconditional.

FFB asserts that Debtor’s conduct after dismissal demonstrates that he

believed the payments were required by the Dismissal Order and the

bankruptcy court relied on Debtor’s pledge to make the payments. Thus,

FFB argues, those payments were an implied condition of the Dismissal

Order. We disagree.

     Debtor’s statements about paying creditors and his understanding of

the court’s order do not alter the effect of the Dismissal Order, which

plainly provides for a straight dismissal. And the bankruptcy court did not

implicitly condition dismissal on payments to creditors. FFB argues that at

the hearing, the court was “adamant” that Debtor make the payments to

unsecured creditors upon dismissal “or else,” but this mischaracterizes the

court’s statements. The bankruptcy court suggested—in response to the

                                     14
UST’s argument that conversion was preferable because there was no

guaranty Debtor would pay creditors upon dismissal—that Debtor and his

counsel’s representations to the court meant something, but it did not rule

that Debtor was required to pay creditors as a condition of dismissal. The

bankruptcy court did not incorporate any statements made at the hearing

into its decision; the Dismissal Order contains the entirety of the court’s

reasoning.

      Furthermore, the bankruptcy court did not improperly rely on

Debtor’s pledge to pay unsecured creditors. In analyzing the best interests

of creditors and the estate, the court reasoned that the non-estate funds

borrowed by Debtor, and the concession by Ms. Berry, would inherently

benefit all creditors. Even if Debtor did not pay all claims upon dismissal,

remaining creditors would be in a better position to collect against Debtor’s

assets and would have fewer claims to compete against.

      The bankruptcy court handled the dispute over Debtor’s dismissal

commendably. It discussed its concerns with the parties, explored their

arguments, and allowed time for the issue to play out. After the parties

fully briefed and argued their positions, the court entered a thorough

written order, rejecting Debtor’s proposed structured dismissals, and

correctly applying the law under § 1112(b).

      To accept FFB’s argument, we would have to disregard the

bankruptcy court’s written order, which expressly provides for a straight

dismissal, and instead review the court’s oral comments as it evaluated the

                                      15
parties’ arguments. This would be exactly backwards: written decisions

always supersede the court’s oral comments. Rawson v. Calmar S.S. Corp.,

304 F.2d 202, 206 (9th Cir. 1962) (“[T]he oral comments of the trial court in

announcing its decision . . . [are] superseded by the findings of fact. The

trial judge is not to be lashed to the mast on his off-hand remarks in

announcing decision prior to the presumably more carefully considered

deliberate findings of fact.”).

      The Dismissal Order does not violate the holding of Jevic because it

provides for a straight dismissal in accordance with § 349, and it neither

expressly nor impliedly conditions dismissal on payments to creditors.

C.    The bankruptcy court did not abuse its discretion by finding cause
      to dismiss or convert the case or by deciding that dismissal was in
      the best interests of creditors and the estate.

      FFB does not argue that the bankruptcy court erred by finding cause

under § 1112(b) or by determining that dismissal was in the best interests

of creditors and the estate.4 We discern no abuse of discretion.

      The bankruptcy court properly evaluated the circumstances of the

case and found cause to dismiss or convert. Debtor’s purpose for filing the

      4  Although FFB argues that the court erred by relying on Debtor’s promise to pay
creditors, it does not explain how such alleged error affected the court’s balancing test
or how it resulted in an abuse of discretion. “We will not consider arguments that were
not raised specifically and distinctly in the opening brief.” Todeschi v. Juarez (In re
Juarez), 603 B.R. 610, 622 n.10 (9th Cir. BAP 2019). FFB does not argue that conversion
was a better alternative. Instead, it asks us to “completely reverse the impermissible
Dismissal Order.”
                                           16
case was obviated by the loss of Blackgold, and without sufficient rental

income, his prospects for reorganization were greatly diminished. The

court correctly applied the law by analyzing whether appointing a trustee

would better serve interests of creditors and the estate and by evaluating

whether unusual circumstances existed to prevent dismissal or conversion.

Finally, the court appropriately performed a multifactor balancing test

between conversion and dismissal.

D.    The bankruptcy court properly denied FFB’s motions to compel.

      Because the bankruptcy court dismissed Debtor’s case, it correctly

denied FFB’s motions to compel as moot. Upon dismissal, property of the

estate revested in Debtor, subject to all encumbrances which existed prior

to the case, and FFB retained its legal remedies.

                              CONCLUSION

      Based on the foregoing, we AFFIRM the bankruptcy court’s orders

dismissing the case and denying FFB’s motions to compel as moot.

                                      17