Court Opinion

ID: 4584585
Source: CourtListenerOpinion
Date Created: 2020-11-06 23:00:38.169863+00
Date Added: 2024-06-11T13:42:45.642878
License: Public Domain

FILED
                                                                           NOV 4 2020
                           NOT FOR PUBLICATION                        SUSAN M. SPRAUL, CLERK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. NC-20-1087-FBG
TAMMY OGLETREE,
           Debtor.                                   Bk. No. 19-50392-SLJ

SARAH DAVIS,
                    Appellant,
v.                                                   MEMORANDUM*
TAMMY OGLETREE,
           Appellee.

               Appeal from the United States Bankruptcy Court
                    for the Northern District of California
               Stephen L. Johnson, Bankruptcy Judge, Presiding

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

                                 INTRODUCTION

      Creditor Sarah Davis appeals from the bankruptcy court’s order

overruling her objection to debtor Tammy Ogletree’s chapter 131 plan. In

particular, Ms. Davis objected on the ground that Ms. Ogletree’s proposed

treatment of two properties located in New York State violated the best

      *
        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.
interest of creditors test under § 1325(a)(4). She argued that, if the

properties were liquidated, there would be sufficient funds to pay all of

Ms. Ogletree’s unsecured creditors. The bankruptcy court overruled the

objection, and Ms. Davis appealed.

       We agree with the bankruptcy court that the chapter 13 plan did not

violate the best interest of creditors test. We therefore AFFIRM.

                            FACTUAL BACKGROUND2

A.     Prepetition events

       Ms. Ogletree, Ms. Davis, and Chadwick Greer were members of Eat

Earth LLC, which operated a restaurant in Santa Cruz, California. In 2017,

due to a business dispute, Ms. Ogletree and Mr. Greer allegedly ousted

Ms. Davis from the business. Ms. Davis sued Ms. Ogletree and Mr. Greer in

state court.

       Ms. Ogletree, her mother (Carole Taub), and Mr. Greer owned as

joint tenants a single-family residence at Ene Road in Plattekill, New York

(the “Ene Road Property”) that they purchased in 2004.

       Ms. Ogletree and Mr. Greer were members of 46 Main St. LLC (“the

LLC”). The LLC owned commercial real property located at 46 Main Street

in New Paltz, New York (the “Main Street Property”).

       2
         We exercise our discretion to review the bankruptcy court’s docket, as
appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2
(9th Cir. BAP 2008).

                                             2
B.    Ms. Ogletree’s chapter 13 petition and proposed plans

      On February 27, 2019, Ms. Ogletree filed a chapter 13 petition.3 In her

Schedule A/B, she valued the Ene Road Property at $289,068 and stated

that she held a thirty-three percent interest worth $95,392.44.

      She also scheduled her fifty percent interest in the LLC. She stated

that the Main Street Property owned by the LLC was valued at $430,000

and encumbered by a two mortgages totaling $260,000. She valued her

interest in the LLC at $85,000.

      Ms. Ogletree did not schedule any secured creditors. She listed

nonpriority unsecured creditors with claims totaling $111,696, including

Ms. Davis’ $40,000 disputed claim.

      Her proposed chapter 13 plan provided that she would pay

unsecured creditors in full. She proposed paying $100 per month for sixty

months and liquidating the Main Street Property to realize $135,000.

      Ms. Ogletree amended her proposed plan and schedules a number of

times, each time decreasing the amount of distributions to nonpriority

unsecured creditors. By her fifth amended plan, she proposed paying

unsecured creditors just five percent of their allowed claims, or only

$9,011.67. She no longer proposed selling the Main Street Property. She also

valued the Ene Road Property at $0, claiming that she had no equitable

      3
       Around the same time, Mr. Greer filed his own chapter 13 petition. The court
confirmed his chapter 13 plan, and the case is pending.

                                          3
interest in the property. She proposed surrendering the Ene Road Property

to Heritage Bank of Commerce, which held a $187,000 claim.

      Chapter 13 trustee Devin Dernham-Burke objected to various

iterations of the amended plan. She argued that Ms. Ogletree’s proposed

payments were insufficient to pay all secured, priority, administrative, and

general unsecured claims. She also argued that the plan violated the best

interest of creditors test under § 1325(a)(4).

C.    Ms. Davis’ objection to confirmation

      Ms. Davis objected to confirmation of the fifth amended plan (the

“Objection”). She argued that Ms. Ogletree’s proposed distributions to

unsecured creditors were insufficient and that the plan failed to account for

the equity in the Ene Road Property and the Main Street Property.

      As for the Ene Road Property, Ms. Ogletree proposed to surrender

the property to Heritage Bank, but Ms. Davis asserted that Ms. Ogletree

actually planned to transfer her interest in the Ene Road Property to her

mother. She asserted that there was no evidence that Ms. Taub was the sole

owner of the Ene Road Property. Ms. Davis estimated that the sale of the

Ene Road Property would result in $29,660 for unsecured creditors.

      As for the Main Street Property, Ms. Davis argued that Ms. Ogletree

owned a fifty percent interest in the LLC, which owned the Main Street

Property. Ms. Davis estimated that the sale of the Main Street Property

would yield $42,050 for unsecured creditors.

                                        4
     In response to the Objection, Ms. Ogletree filed a “Pre-Hearing

Statement.” She argued that Ms. Davis’ calculations regarding the Main

Street Property were wrong and unsupported by evidence.

     Regarding the Ene Road Property, Ms. Ogletree attached a

declaration in which she stated that her mother provided the entire $75,000

down payment and that neither she nor Mr. Greer contributed to the down

payment and closing costs. She testified that, in 2016, her mother assumed

sole responsibility of managing the property as a rental, allegedly paid off

certain liens, and spent $15,000 renovating the Ene Road Property. She

further testified that she had nothing to do with the property since 2014

and believed that her equitable interest in the property was worth $0.

     The bankruptcy court held a hearing on the Objection. As for the

Main Street Property, it held that, under both California and New York

law, the bankruptcy estate did not include either the property or the rental

income, because the property belonged to the LLC, not Ms. Ogletree

personally. It noted that Ms. Ogletree’s interest was determined by the

LLC’s operating agreement, which Ms. Davis did not provide.

     The court also rejected Ms. Davis’ arguments regarding the Ene Road

Property. It held that the plan provided that Ms. Ogletree would surrender

the property, which would terminate her interest in the property.

     The court stated that Ms. Davis did not provide any evidence that

Ms. Ogletree actually intended to transfer the Ene Road Property to her

                                      5
mother; rather, the plan proposed that she would surrender the property to

Heritage Bank. The court said that Ms. Davis did not establish that the Ene

Road Property had any equity (or establish its value beyond a Zillow

valuation) and that Ms. Ogletree stated that there would be a deficiency

balance of $187,000 after surrendering the property.

     The court stated that, under New York law, even though

Ms. Ogletree owned a one-third interest in the Ene Road Property, the

respective contributions of co-tenants are considered when determining the

distribution of proceeds from a sale. It referenced Ms. Ogletree’s

declaration and found that Ms. Taube was entitled to at least $140,000 in

reimbursements. It thus overruled the Objection.

     The bankruptcy court entered an order overruling the Objection.

Ms. Davis timely appealed.

     Subsequently, the chapter 13 trustee withdrew her objection to

confirmation, and the court confirmed the plan.

                              JURISDICTION

     The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334

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

                                   ISSUE

     Whether the bankruptcy court erred in overruling the Objection.

                        STANDARDS OF REVIEW

     We review for abuse of discretion a bankruptcy court’s decisions

                                      6
regarding confirmation of a chapter 13 plan. See de la Salle v. U.S. Bank, N.A.

(In re de la Salle), 461 B.R. 593, 601 (9th Cir. BAP 2011). To determine

whether the bankruptcy court has abused its discretion, we conduct a

two-step inquiry: (1) we review de novo whether the bankruptcy court

“identified the correct legal rule to apply to the relief requested” and (2) if

it did, we consider whether the bankruptcy court’s application of the legal

standard was illogical, implausible, or without support in inferences that

may be drawn from the facts in the record. United States v. Hinkson, 585
F.3d 1247, 1262-63 & n.21 (9th Cir. 2009) (en banc).

      “The liquidation value of a debtor’s assets for purposes of the best

interests of creditors test presents a question of fact. As such, we review the

bankruptcy court’s value findings under the clearly erroneous standard.”

Messer v. Maney (In re Messer), No. BAP AZ-13-1215-PaKuD, 2014 WL
643712, at *2 (9th Cir. BAP Feb. 19, 2014) (citing United States v. Arnold &

Baker Farms (In re Arnold & Baker Farms), 177 B.R. 648, 653 (9th Cir. BAP

1994); Varela v. Dynamic Brokers, Inc. (In re Dynamic Brokers, Inc.), 293 B.R.
489, 493 (9th Cir. BAP 2003)). Factual findings are clearly erroneous if they

are illogical, implausible, or without support in the record. Retz v. Samson

(In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). If two views of the evidence

are possible, the court’s choice between them cannot be clearly erroneous.

Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).

                                        7
                                DISCUSSION

A.    Under § 1325(a)(4), unsecured creditors must receive at least as
      much as they would in a hypothetical chapter 7 case.

      Ms. Davis argues that the bankruptcy court erred in overruling her

Objection because Ms. Ogletree’s general unsecured creditors would

receive more in a hypothetical chapter 7 case.

      To confirm a chapter 13 plan, the bankruptcy court must decide that

the proposed plan satisfies certain criteria. One criterion is § 1325(a)(4),

which is sometimes called the “liquidation analysis” or “best interest of

creditors test.” Section 1325(a)(4) provides that the court shall confirm a

plan if:

      (4) the value, as of the effective date of the plan, of property to
      be distributed under the plan on account of each allowed
      unsecured claim is not less than the amount that would be paid
      on such claim if the estate of the debtor were liquidated under
      chapter 7 of this title on such date[.]

§ 1325(a)(4). In other words, the value of the distributions to each creditor,

under the plan, must be at least as much as the amount that each creditor

would receive if the estate were liquidated and the proceeds distributed in

a chapter 7 case. We have stated that:

      Analysis under § 1325(a)(4) requires a court to make two
      determinations: (1) the present value of the property to be
      distributed to unsecured creditors (the value of the stream of
      plan payments) as of the “effective date of the plan;” and (2) the
      amount available to unsecured creditors if a chapter 7

                                         8
      liquidation were held on the “effective date of the plan.”

Bradley R. Kirk & Assocs., Inc. v. Spellman (In re Spellman), BAP No. CC-15-

1026-KiKuF, 2016 WL 1165827, at *8 (9th Cir. BAP Mar. 22, 2016), aff’d, 737

F. App’x 807 (9th Cir. 2018).

      In order for a chapter 13 plan to be confirmed, “each of the

requirements of section 1325 must be present and the debtor has the

burden of proving that each element has been met.” Barnes v. Barnes (In re

Barnes), 32 F.3d 405, 407 (9th Cir. 1994); see In re Goodrich, Case No.

13-11223, 2014 WL 627429, at *1 (Bankr. N.D. Cal. Feb. 18, 2014) (“Pursuant

to § 1325(a)(4) of the Bankruptcy Code, the debtor has the burden of

showing that a creditor would not receive more in Chapter 7 than the

debtor’s plan provides.”).

B.    The bankruptcy court did not err in its consideration of the Main
      Street Property.

      Ms. Davis argues that the bankruptcy court erred in declining to

include the Main Street Property in its liquidation analysis. She argues that

Ms. Ogletree’s interest in that property is part of her bankruptcy estate and

could be liquidated to pay unsecured creditors. We disagree.

      Section 541(a)(1) provides that property of a bankruptcy estate is

comprised of “all legal or equitable interests of the debtor in property as of

the commencement of the case.” “Although the question whether an

interest claimed by the debtor is ‘property of the estate’ is a federal

                                        9
question to be decided by federal law, bankruptcy courts must look to state

law to determine whether and to what extent the debtor has any legal or

equitable interests in property as of the commencement of the case.”

Fursman v. Ulrich (In re First Prot., Inc.), 440 B.R. 821, 828 (9th Cir. BAP 2010)

(quoting McCarthy, Johnson & Miller v. N. Bay Plumbing, Inc. (In re Pettit),

217 F.3d 1072, 1078 (9th Cir. 2000)).

      Ms. Davis concedes that the LLC, not Ms. Ogletree, owns the Main

Street Property. She also does not challenge the bankruptcy court’s holding

that, under both California and New York law, the members’ rights are

determined by the LLC’s operating agreement. But Ms. Davis failed to

provide a copy of that agreement. Without the operating agreement, she

could not prove her contention about the value of Ms. Ogletree’s interest in

the LLC. Ms. Davis’ failure to offer this crucial piece of evidence justified

the rejection of her argument.

      Ms. Davis attempts to circumvent her failure of proof by arguing

that, because both Ms. Ogletree and Mr. Greer are pursuing their respective

chapter 13 bankruptcy cases, “a Chapter 7 Trustee could cause the LLC to

sell the real property and distribute the net proceeds to [the] bankruptcy

estate.” But this does not solve her evidentiary problem. It is true that, as a

general rule, “all of [a debtor’s] contractual rights and interest in [an LLC]

[becomes] property of their estate under § 541(a)(1) by operation of law

when they filed their petition.” Id. at 830. “[W]here a debtor has a

                                        10
membership interest in a single-member LLC . . . , the Chapter 7 trustee

succeeds to all of the debtor’s rights, including the right to control that

entity, and a trustee need not take any further action to comply with state

law before exercising such control.” Schwartzer v. Cleveland (In re Cleveland),

519 B.R. 304, 306 (D. Nev. 2014). But the rights to which the trustee

succeeds are defined and limited by the LLC’s operating agreement. A

chapter 7 trustee would step into Ms. Ogletree’s shoes and assume only the

rights she had under the operating agreement. Because Ms. Davis failed to

present the court with the LLC’s operating agreement, there was no factual

basis for her argument that a chapter 7 trustee in her case (or in Mr. Greer’s

case, or both of them acting in concert) could have liquidated the Main

Street Property and split the net proceeds equally.

      Ms. Davis cites only a single out-of-circuit case, In re Albright, 291 B.R.
538 (D. Colo. 2003), in support of her position that a chapter 7 trustee could

assume control of both Ms. Ogletree’s and Mr. Greer’s interests in the LLC.

However, Albright, which involves a single-member LLC, does not stand

for the proposition that the § 1325(a)(4) liquidation analysis allows a

hypothetical chapter 7 trustee to force a liquidation of the LLC’s assets

notwithstanding the terms of the LLC’s operating agreement. Nor does it

hold that a hypothetical chapter 7 trustee in one case can reach out and

control the estate of a second debtor in a separate chapter 13 case. In fact,

Albright specifically notes that, under Colorado law, other members of an

                                       11
LLC cannot be forced to permit a bankruptcy trustee to step into the shoes

of a debtor to manage the LLC. Id. at 540.

      Even assuming that the hypothetical chapter 7 trustee could force a

liquidation of the LLC’s property and equal distribution of the proceeds,

Ms. Davis offered no comprehensible account of the funds that the general

unsecured creditors would receive. Her arithmetic does not support her

conclusion.

      Therefore, the bankruptcy court did not err in overruling the

Objection based on the Main Street Property and the liquidation analysis.

C.    The bankruptcy court did not err in its consideration of the Ene
      Road Property.

      Ms. Davis also argues that the court erred in excluding the Ene Road

Property from its liquidation analysis. We do not agree with all of the

bankruptcy court’s reasoning on this point, but we agree with its result.

      Ms. Davis contends that there was significant equity in the Ene Road

Property to pay unsecured creditors. She claims that the sale of the

property would result in net proceeds to the estate totaling $22,986.4

      The bankruptcy court stated that, because Ms. Ogletree proposed to

surrender the Ene Road Property under her plan, the proceeds of that

property were not property of the estate and should not be included in the

liquidation analysis. This was incorrect. The liquidation analysis compares

      4
          Ms. Davis’ calculations are again confusing and do not support her conclusion.

                                            12
the results under a proposed plan with the results of a chapter 7

liquidation. In a chapter 7 case, the Ene Road Property would not be

“surrendered,” because that concept does not exist in chapter 7. It is

inappropriate to project the results of the hypothetical chapter 7 liquidation

using one term of a not-yet-confirmed chapter 13 plan.

      But the bankruptcy court reached the correct result regardless. It

properly rejected Ms. Davis’ arguments about the liquidation analysis.

      The starting point of the liquidation analysis is the probable selling

price. In the bankruptcy court, Ms. Davis mentioned the 2004 purchase

price of $299,000, a Zillow.com estimate of $262,822, and the tax assessed

value of $250,000. She argued, rather arbitrarily, that the court should

accept the highest of these numbers. However, she offered no evidence to

support any of these figures. If she had attempted to do so, she would have

had to overcome objections based on hearsay and unreliability.5 She never

explains why the court should have selected the highest (and most

      5
          The Zillow “Zestimate” is particularly questionable. As Zillow itself says:

      The Zestimate is not an appraisal and can’t be used in place of an
      appraisal. It is a computer-generated estimate of the value of a home
      today, given the available data.

      The Zestimate should not be used as the basis of any specific financial
      transaction because data sources may be incomplete or incorrect. The
      Zestimate is a starting point and does not consider all the market
      intricacies that can determine the actual price a home will sell for.

What is a Zestimate? Zillow’s Zestimate Accuracy, https://www.zillow.com/zestimate/
(last visited Oct. 7, 2020).

                                             13
outdated) number. The court did not clearly err in rejecting her valuation.

      Ms. Davis also argues that there is no evidence that Ms. Taub made

the payments and investments in the Ene Road Property as described in

Ms. Ogletree’s declaration. This is false; Ms. Ogletree’s declaration was

evidence on which the bankruptcy court properly relied.6 Ms. Davis did not

provide any evidence to contradict Ms. Ogletree’s statements made under

penalty of perjury, so it was not clear error for the court to accept

Ms. Ogletree’s valuation, including her sworn statements about Ms. Taub’s

contributions to the Ene Road Property.

      Finally, she points out that Ms. Ogletree was a joint tenant with

Ms. Taub and Mr. Greer. She contends that the proceeds of the property

must be divided equally, without regard for the joint tenants’ disparate

contributions, unless the joint tenancy is severed or a partition action is

filed. She is mistaken.

      In Ms. Ogletree’s hypothetical chapter 7 case, the trustee would

succeed to Ms. Ogletree’s joint tenancy interest in the Ene Road Property.

Because fractional interests in property are hard to sell and usually sell at a

significant discount, the hypothetical trustee would probably use § 363(h)

to sell Ms. Ogletree’s interest together with Mr. Greer’s and Ms. Taub’s

      6
        Ms. Davis might mean that Ms. Ogletree’s declaration was self-serving and
uncorroborated, but self-serving and uncorroborated evidence is evidence nonetheless,
and a court can rely on such evidence, particularly where there is no contrary evidence.

                                           14
interests – in other words, to sell a 100% interest in the property.7 The

trustee would then distribute the net proceeds to the co-owners and the

estate “according to the interests of such spouse or co-owners, and of the

estate.” § 363(j).

      State law governs the various property interests implicated by

§ 363(h):

      As the Supreme Court has stated, “[p]roperty interests are
      created and defined by state law. Unless some federal interest
      requires a different result, there is no reason why such interests
      should be analyzed differently simply because an interested
      party is involved in a bankruptcy proceeding.” Butner v. United
      States, 440 U.S. 48, 55, 99 S. Ct. 914, 59 L. Ed. 2d 136 (1979). In

      7
          Section 363(h) provides:

      (h) Notwithstanding subsection (f) of this section, the trustee may sell both
      the estate’s interest, under subsection (b) or (c) of this section, and the
      interest of any co-owner in property in which the debtor had, at the time
      of the commencement of the case, an undivided interest as a tenant in
      common, joint tenant, or tenant by the entirety, only if –

               (1) partition in kind of such property among the estate and such
               co-owners is impracticable;

               (2) sale of the estate's undivided interest in such property would
               realize significantly less for the estate than sale of such property
               free of the interests of such co-owners;

               (3) the benefit to the estate of a sale of such property free of the
               interests of co-owners outweighs the detriment, if any, to such
               co-owners; and

               (4) such property is not used in the production, transmission, or
               distribution, for sale, of electric energy or of natural or synthetic gas
               for heat, light, or power.

                                              15
      fact, § 363(h) does not “purport to alter or redefine the property
      rights upon which it was designed to operate.” In re Persky, 134
B.R. 81, 85 (Bankr. E.D.N.Y. 1991). Thus, under § 363(h), “[s]tate
      and not federal law determines the nature and extent of a
      debtor’s interest in property as of the date of the
      commencement of his bankruptcy case under all of the
      authorities.” Lake Erie Leasing, Inc. v. Bundy (Matter of Bundy), 53
B.R. 582, 584 (Bankr. W.D. Pa. 1985); see also In re Persky, 134
B.R. at 85.

UTSA Apartments, L.L.C. v. UTSA Apartments 8, L.L.C. (In re UTSA

Apartments 8, L.L.C.), 886 F.3d 473, 487 (5th Cir. 2018); see generally Stine v.

Diamond (In re Flynn), 297 B.R. 599, 605 (9th Cir. BAP 2003), rev’d and

remanded on other grounds, 418 F.3d 1005 (9th Cir. 2005) (“[T]he estate and

co-owner each own that to which state property law entitles them. Thus,

we construe § 363 in light of the property rights Stine and the trustee have

under California law.”). Similarly, state law determines the “interests” of

the co-owners and the estate under § 363(j). See In re UTSA Apartments 8,

L.L.C., 886 F.3d at 487 (“[I]t naturally follows that state law should similarly

determine the interest shares for purposes of a § 363(j) distribution

following a sale pursuant to § 363(h).”).

      This is consistent with the general proposition that, “[u]nless the

Bankruptcy Code or bankruptcy case law create other legal rights, the

rights of parties to an interest in real property are established by applicable

state law.” In re Rerisi, 172 B.R. 525, 527 (Bankr. E.D.N.Y. 1994); see In re

Liggett, 118 B.R. 213, 216-17 (Bankr. S.D.N.Y. 1990) (applying New York

                                        16
state law to determine debtor’s interest in real property).

      It is also consistent with the fact that § 363(h) is a statutory partition

provision. When determining the parties’ respective property interests in

partition actions, New York courts rely on equitable principles of division.

See, e.g., Worthing v. Cossar, 462 N.Y.S.2d 920, 922 (1983) (“A partition

action, although statutory, is equitable in nature and an accounting of the

income and expenses of the property sought to be partitioned is a

necessary incident thereof.”). Under New York law,

      in determining the equitable division of property, the Court
      may consider the nature of the parties’ relationship, disparities
      in down payments and mortgage payments, whether any such
      disparate contributions to the property were intended to be a
      gift, the reasonable value of improvements and repairs to the
      property and the reasonable value of rental payments with
      regard to an ousted co-tenant. In other words, while the Court
      should consider the parties’ separate contributions to
      acquisition and improvement of the property, the Court also
      must consider the relationship between the parties and whether
      the co-tenant who paid for such expenditures intended his
      disparate contributions to be a gift.

Melnick v. Press, 809 F. Supp. 2d 43, 59 (E.D.N.Y. 2011) (citations and

quotation marks omitted).

      In the present case, the bankruptcy court properly accepted

Ms. Ogletree’s valuation of the property and her testimony about her

mother’s disproportionate contributions. It correctly held that, under New

York law, the distribution of proceeds of any sale of the Ene Road Property

                                        17
would have to take into consideration Ms. Taub’s contributions including

the down payment, closing costs, and renovation expenses. It thus did not

err in rejecting Ms. Davis’ liquidation analysis.

                               CONCLUSION

      The bankruptcy court did not err in overruling the Objection. We

AFFIRM.

                                      18