Court Opinion

ID: 3035089
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:52:04.713189+00
Date Added: 2024-06-11T11:48:34.075624
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

In re: COOPER COMMONS, LLC,                
                         Debtor,
                                                  No. 03-56818
                                                    BAP No.
WEINSTEIN, EISEN & WEISS, LLP,
                        Appellant,             CC-03-01090-PKD
                                                 ORDER AND
                v.
                                                  AMENDED
DAVID A. GILL, Chapter 11                          OPINION
Trustee; COMERICA BANK,
                        Appellees.
                                           
                 Bankruptcy Appellate Panel
   Perris, Klein, and Dunn, Bankruptcy Judges, Presiding

                   Argued and Submitted
              May 4, 2005—Pasadena, California

                    Filed September 13, 2005
                   Amended December 7, 2005

            Before: Diarmuid F. O’Scannlain and
          Kim McLane Wardlaw, Circuit Judges, and
             Charles C. Lovell,* District Judge.

                 Opinion by Judge O’Scannlain

  *The Honorable Charles C. Lovell, United States District Judge for the
District of Montana, sitting by designation.

                                15799
15802              IN RE: COOPER COMMONS

                         COUNSEL

David R. Weinstein, Los Angeles, California, argued the
cause for the appellant; David R. Weinstein and Leonard
Peña, Los Angeles, California, were on the briefs.

Joel R. Ohlgren, Los Angeles, California, argued the cause for
the appellees; John J. Bingham, Jr., John N. Tedford, IV, and
David J. McCarty, Los Angeles, California, were on the
briefs.
                   IN RE: COOPER COMMONS               15803
                          ORDER

  The Court sua sponte recalls the mandate issued on
November 18, 2005. The opinion filed on September 13,
2005, and reported at 424 F.3d 963, is hereby amended. The
amended opinion is filed concurrently with this order. The
Court directs the Clerk to reissue the mandate forthwith.

                         OPINION

O’SCANNLAIN, Circuit Judge:

   We must decide whether a lender to a bankrupt condomin-
ium development can effectively specify that post-petition
loans it makes may be used only for certain purposes.

                              I

   Cooper Commons, LLC, voluntarily entered Chapter 11
bankruptcy on February 22, 2002. Its business consisted of
the construction and sale of a 62-unit condominium develop-
ment in West Hollywood, California. Its principal creditor
was Comerica Bank, which has a senior security interest in
the development.

  Cooper Commons acted as debtor-in-possession for nine
months, until the appointment of David A. Gill as trustee.
During this period, Weinstein, Eisen and Weiss, LLP, (“the
Weinstein firm”), acted as its general counsel and helped
Cooper Commons negotiate three agreements, or stipulations,
with Comerica Bank for continued financing necessary to the
completion of the condominiums.

  In the first stipulation, Comerica agreed that Cooper Com-
mons could use some $50,000 of such continued financing to
pay for the services of retained professionals like the Wein-
15804               IN RE: COOPER COMMONS
stein firm. This provision carried over into the other two stip-
ulations.

   On January 3, 2003, Gill, as trustee, filed a motion asking
the bankruptcy court to approve additional financing from
Comerica. Gill explained that he needed roughly $4.25 mil-
lion to finish construction on the condominiums, plus an addi-
tional $888,469 to pay for “the reasonable value of the
services provided and to be provided by [Gill] and his profes-
sionals” (emphasis added). Gill attached a spreadsheet to the
motion breaking down the estimated services, which were
apportioned between Gill and the various professionals that he
had hired. No mention was made of the Weinstein firm. In
due course the Weinstein firm received a copy of Gill’s Janu-
ary 3 motion and the attached spreadsheet.

   The bankruptcy court set the motion for hearing on Febru-
ary 5, 2003 and ordered Gill to circulate notice. Gill’s notice
was circulated on January 21, 2003, and stated that full details
of the subject matter of the hearing could be found in the Jan-
uary 3 motion and attachments. In due course the Weinstein
firm received the January 21 notice.

   On January 31, 2003, Gill filed and circulated a final ver-
sion of the specific financing agreement he proposed for
approval. He now sought a total of $5,741,220 in loans,
although the portion set aside for his expenses, and the
expenses of his professionals, was still set at $888,469. In due
course the Weinstein firm received this January 31 document.

   At the February 5, 2003, hearing, the Weinstein firm
objected to the proposed arrangement in which the $888,469
was set aside only for the trustee and his professionals,
excluding the Weinstein firm and other prior professionals of
the bankruptcy estate. The Weinstein firm also objected to
what it felt was inadequate notice, since it stated that (1) it
had not received the January 31 document until February 3,
2003, and (2) the January 3 motion and the January 21 notice
                    IN RE: COOPER COMMONS                 15805
had not stated with adequate clarity that the Weinstein firm
would not be paid out of the proposed loan.

   The bankruptcy court rejected the Weinstein firm’s argu-
ments and entered a final order approving the proposed
financing. The bankruptcy judge found that “the post-petition
financing has been negotiated in good faith and at arms’-
length . . . . Any credit extended . . . shall be deemed to have
been extended . . . in good faith . . . .” The bankruptcy judge
also found that the proposed financing arrangement was fair
and reasonable; that the bankruptcy estate’s value increased
because of it but would decrease without it; and that it left
none of the bankruptcy estate’s creditors worse off than they
would have otherwise been.

   The Weinstein firm appealed to the Bankruptcy Appellate
Panel “BAP”), which held that the firm had not been denied
due process, because the January 3 and January 21 filings had
provided sufficient notice, and rejected the firm’s substantive
claims because it had not adequately raised them before the
bankruptcy court. From that BAP order, the Weinstein firm
filed this timely appeal.

                               II

   The Weinstein firm first claims a due process violation
based on its alleged late notice that it would be shut out from
the distribution of the $888,469.

   This argument fails. The information that the Weinstein
firm received on January 31 was not materially different from
the January 3 motion, which set forth how the sum would be
used. The January 3 motion expressly provided that

    [i]n addition, the Trustee estimates that the expenses
    to the estate for the reasonable value of the services
    provided and to be provided by himself and his pro-
    fessionals for the legal and administrative tasks
15806               IN RE: COOPER COMMONS
    required directly related to construction, marketing
    and sales . . . as well as those tasks relating to the
    duties required of the Trustee . . . will amount to
    approximately $888,469 . . . .

(emphasis added). In fact, the spreadsheet attached to the Jan-
uary 3 motion carefully itemized the various expenses that
Gill and his various professionals had incurred or would incur
and the Weinstein firm was not listed. The Weinstein firm’s
arguments that the January 3 motion provided less informa-
tion than the January 31 document are without merit.

   [1] At best, the Weinstein firm was entitled to notice rea-
sonably calculated to inform it that the additional funds from
Comerica would be applied only to Gill and his professionals,
with such notice given sufficiently ahead of the hearing date
that it could prepare objections. See Mullane v. Central Hano-
ver Bank & Trust Co., 339 U.S. 306, 315 (1950). We are sat-
isfied that the Weinstein firm was on notice of its exclusion
from the proposed financing arrangement when it received the
January 3 motion. There was no due process violation.

                              III

   [2] The Weinstein firm also contends that the financing
arrangement would violate 11 U.S.C. § 507(a)(1) because that
section gives equal priority to the administrative claimants
like Gill, his professionals, and the Weinstein firm while the
financing arrangement does not. Because the financing
arrangement is a post-bankruptcy extension of credit under 11
U.S.C. § 364, Gill and Comerica respond that the Weinstein
firm’s substantive claims are mooted by 11 U.S.C. § 364(e)
which provides as follows:

    The reversal or modification on appeal of an authori-
    zation under this section to obtain credit or incur
    debt, or of a grant under this section of a priority or
    a lien, does not affect the validity of any debt so
                    IN RE: COOPER COMMONS                 15807
    incurred, or any priority or lien so granted, to an
    entity that extended such credit in good faith,
    whether or not such entity knew of the pendency of
    the appeal, unless such authorization and the incur-
    ring of such debt, or the granting of such priority or
    lien, were stayed pending appeal.

Id. (emphasis added). Thus, they contend, Weinstein has no
remedies because it failed to obtain a stay of the bankruptcy
court’s order pending the appeal and because the bankruptcy
court expressly found that Comerica extended credit in good
faith. Weinstein’s claim is therefore mooted, they urge,
because any relief the Weinstein firm seeks would “affect the
validity of [the] debt.” See Bennett v. Gemmill (In re Com-
bined Metals Reduction Co.), 557 F.2d 179, 187 (9th Cir.
1977) (holding that appeals are moot when appellate courts
can provide no effective relief).

                               A

   Specifically, the Weinstein firm seeks three different kinds
of relief. It first asks that we declare the financing agreement
invalid and order Gill and Comerica to renegotiate, this time
without ignoring the claims of the bankruptcy estate’s prior
professionals. Second, as an alternative, it asks us to order
that the $888,469 earmarked for Gill and his professionals be
distributed pro rata among all the administrative claimants,
including the Weinstein firm, or even that it be given a larger
share. Third, in yet another alternative, it requests that we
order Comerica to loan additional money sufficient to cover
the Weinstein firm’s demands, subject to the same terms as in
the existing loan.

                               1

   [3] The first relief sought—invalidating the financing
agreement—would clearly “affect the validity of any debt
incurred” and therefore fails, mooted by § 364(e).
15808                   IN RE: COOPER COMMONS
                                      2

   [4] What about the second and the third claims for relief?
We held in In re Adam’s Apple, Inc., 829 F.2d 1484 (9th Cir.
1987), that § 364(e) broadly protects any requirement or obli-
gation that was part of a post-petition creditor’s agreement to
finance.1 At issue in In re Adam’s Apple was an interim
financing agreement in which Central Washington Bank
agreed to advance $450,000 in funds to an apple-grower
debtor, in exchange for converting the bank’s pre-petition
unsecured debt to secured debt. Id. at 1486. The court
explained that it could not reach the legality of cross-
collateralization until it first decided whether the case was
moot, i.e., whether there was any available remedy not barred
by § 364(e). Id. at 1489 n.7. It concluded it could not invali-
date the new security that had been granted Central Washing-
ton Bank without “affect[ing] the validity” of the new debt.
The court reasoned that “[s]ection 364 was designed to pro-
vide a debtor a means to obtain credit after filing bankruptcy,”
and therefore that any agreements or conditions necessary to
obtain that credit were protected by § 364(e). Id. at 1488. The
court explained, citing Matter of EDC Holding Company, 676
F.2d 945, 947 (7th Cir. 1982), that “the purpose of 364(e) was
to overcome a good faith lender’s reluctance to extend financ-
ing in a bankruptcy context by permitting reliance on a bank-
ruptcy judge’s authorization.” Id. Since protecting the validity
   1
     Two of our sister circuits have adopted our approach. See In re Elling-
sen MacLean Oil Co., Inc., 834 F.2d 599, 600-01 (6th Cir. 1987) (where
a bank extended post-petition financing in return for the waiver of any
right to challenge its pre-petition liens, extending the protection of
§ 364(e) to both the post-petition debt and the waiver); In re Revco D.S.,
Inc., 901 F.2d 1359, 1364 (6th Cir. 1990) (explaining that in “reviewing
financing orders subject to section 364(e) [courts] have been reluctant to
sever individual provisions”); In re Western Pacific Airlines, Inc., 181
F.3d 1191, 1195 (10th Cir. 1999) (holding that “§ 364(e) prohibits not
only outright invalidation of a lien or priority . . . , but also modification
of the terms”). But see Matter of Saybrook Mfg. Co., Inc., 963 F.2d 1490
(11th Cir. 1992).
                    IN RE: COOPER COMMONS                 15809
of any clause of the debt agreement that might have motivated
the creditor to extend the credit served this purpose, it fol-
lowed that § 364(e) protected the cross-collateralization
clauses and the appeal was indeed moot. Id.

   [5] In the case before us, it follows that any provisions of
the financing agreement that Comerica might have bargained
for or that helped to motivate its extension of credit are pro-
tected by § 364(e). The provisions that would be affected by
the Weinstein firm’s second and third proposed remedies—
those directing that up to $888,469 go to Gill and his profes-
sionals, requiring that unused funds be returned to Comerica,
and setting the total loan amount—are just such provisions.
Comerica’s motive in lending money was to ensure the com-
pletion of the condominium project; payments to profession-
als whose services were no longer retained would not likely
help. Further, since any unused funds were to be returned to
Comerica, it was clearly in Comerica’s interest to limit the
number of claimants. Comerica’s interest in loaning only the
amount it agreed on and not some larger sum is also transpar-
ent. We conclude that the financing agreement cannot be
undone, the $888,469 cannot be ordered redistributed, and the
loan amount cannot be adjusted upward—and therefore that
Weinstein’s second and third requested forms of relief are
also unavailable.

                               B

   [6] Since the Weinstein firm has failed to secure a stay, all
that remains under § 364(e) is to review whether Comerica
acted in good faith. The bankruptcy court expressly found that
Comerica had:

       Based on the record presented to the Court, the
    post-petition financing from Comerica has been
    negotiated in good faith and at arms’-length between
    the Trustee and Comerica. Any credit extended and
    loans made to the Trustee pursuant to the DIP
15810              IN RE: COOPER COMMONS
    Financing Agreement shall be deemed to have been
    extended or made, as the case may be, in good faith
    as required by, and within the meaning of, Bank-
    ruptcy Code § 364(e).

   [7] We independently review the bankruptcy court’s find-
ing for clear error. In re Casserino, 379 F.3d 1069, 1072 (9th
Cir. 2004). The court’s finding is supported by numerous dec-
larations by Comerica and the Trustee, describing the need for
additional financing to complete the project, the efforts made
to analyze the amount necessary to complete the work, and
the parties’ subjective beliefs that the agreement was negoti-
ated at arms’ length and would be in the best interest of the
estate and its creditors. The bankruptcy court’s finding that
Comerica acted in good faith for the purposes of § 364(e) was
not clearly erroneous.

  [8] Section 364(e) moots Weinstein’s substantive claims.

                             IV

   The Weinstein firm received adequate notice of the financ-
ing agreement and its substantive objections to the agreement
are moot.

  AFFIRMED.