Court Opinion

ID: 2757092
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:29.52169+00
Date Added: 2024-06-11T11:26:53.673652
License: Public Domain

FILED
                                                          JUN 08 2012
                                                      SUSAN M SPRAUL, CLERK
                                                        U.S. BKCY. APP. PANEL
 1                                                      OF THE NINTH CIRCUIT

 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                             ) BAP No. CC-11-1625-PaDH
                                        )
 6   SERRON INVESTMENTS, INC.,          ) Bankr. No. 11-12566-MT
                                        )
 7                  Debtor.             )
     ___________________________________)
 8                                      )
     SERRON INVESTMENTS, INC.,          )
 9                                      )
                    Appellant,          )
10                                      )
     v.                                 ) M E M O R A N D U M1
11                                      )
     PACIFICA L 22, LLC,                )
12                                      )
                    Appellee.           )
13   ___________________________________)
14                    Argued and Submitted on May 17, 2012
                             at Pasadena, California
15
                              Filed - June 8, 2012
16
                 Appeal from the United States Bankruptcy Court
17                   for the Central District of California
18            Honorable Maureen Tighe, Bankruptcy Judge, Presiding
19
     Appearances:    Moises Saul Bardavid argued for appellant Serron
20                   Investments, Inc.; Martin Phillips argued for
                     appellee Pacific L 22, LLC.
21
22   Before: PAPPAS, DUNN and HOLLOWELL, Bankruptcy Judges.
23
24
25
26
          1
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may have
     (see Fed. R. App. P. 32.1), it has no precedential value. See 9th
28   Cir. BAP Rule 8013-1.

                                      -1-
 1           Chapter 112 debtor Serron Investments, Inc. (“Serron”)
 2   appeals the bankruptcy court’s order dismissing its bankruptcy
 3   case.       We AFFIRM.
 4                                      FACTS
 5           Unless noted, the material facts in this case are undisputed.
 6           Serron, a Delaware corporation engaged in the business of
 7   acquiring and selling interests in real property, acquired title
 8   to a property on Tryon Road in Los Angeles (the “Property”) from
 9   Alejandro Elias Weissman (“Weissman”) on January 26, 2009.       At
10   that time, the Property was already encumbered by a first deed of
11   trust in the amount of $1,320,000, dated January 22, 2009, in
12   favor of East-West Bank.      The beneficial interest in this deed of
13   trust was assigned to appellee Pacifica L 22, LLC (“Pacifica”) on
14   September 15, 2010.
15           Serron executed two other trust deeds on the Property:    a
16   second deed of trust for $265,000 in favor of First Yorkshire
17   Holdings, Inc. (“First Yorkshire”); and a third deed of trust for
18   $245,000 in favor of Durham Development Company, Inc. (“Durham
19   Development”).3      Both the second and third trust deeds were dated
20   April 9, 2010, executed April 13, 2010, and recorded on
21   November 30, 2010.
22           On December 22, 2010, Serron executed a Grant Deed
23   transferring a 25 percent interest in the Property to Weissman.
24
25           2
            Unless otherwise indicated, all chapter, section and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
26   the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
27           3
            The bankruptcy court would later determine, as to Serron,
     First Yorkshire and Durham Development, that “they’re all the same
28   people.” Tr. Hr’g 6:7, September 22, 2011.

                                         -2-
 1   The Grant Deed bears the notation, “This is a bonafide gift and
 2   the grantor received nothing in return.”
 3        The next day, December 23, 2010, First Yorkshire, the
 4   beneficiary of the second deed of trust, filed a petition for
 5   relief under chapter 11.   Bankr. C.D. Cal. Case no. 10-26058-AA.
 6   At that time, the monthly payments on the Pacifica first deed of
 7   trust were in default for seven payments totaling $9,116.92.
 8   Neither Serron nor First Yorkshire made any payments on the first
 9   trust deed after First Yorkshire filed for bankruptcy, so Pacifica
10   filed a motion for stay relief on January 31, 2011.   After a
11   hearing on March 2, 2011, the motion for relief from stay was
12   granted under § 362(d)(2) and (d)(4) by order entered on March 28,
13   2011, in which the First Yorkshire bankruptcy court noted that
14   “the filing of the [First Yorkshire] petition was part of a scheme
15   to delay, hinder and defraud creditors that involved either []
16   transfer of all or part ownership of, or other interest in the
17   Property without the consent of the secured creditor or court
18   approval.”   First Yorkshire appealed the stay relief to the Panel,
19   and on May 10, 2012, the Panel entered its Opinion vacating the
20   stay relief order.   First Yorkshire Holdings, Inc. v. Pacifica L
21   22, LLC (In re First Yorkshire Holdings, Inc.), ___ B.R. ___, 2012
22   WL 1658250 (9th Cir. BAP 2012).4
23        The day before the stay relief hearing in the First Yorkshire
24   bankruptcy case, on March 1, 2011, Serron filed a chapter 11
25
          4
            The Panel in First Yorkshire vacated the stay relief order
26   granted under § 362(d)(2) and (d)(4), because the bankruptcy court
     had not made adequate findings of fact under Civil Rule 52(a) to
27   support its orders. The Panel remanded the matter to the
     bankruptcy court to provide those findings. However, the Panel’s
28   decision in First Yorkshire is not relevant in the current appeal.

                                        -3-
 1   petition.    Serron’s schedules listed the first deed of trust in
 2   favor of Pacifica as a disputed debt for $1,386,326.00, and
 3   undisputed deeds of trust in favor of First Yorkshire for $265,000
 4   and Durham Development for $245,000.    The only asset listed in
 5   Serron’s schedules was the Property, other than an unknown amount
 6   of cash.5
 7        The bankruptcy court entered an Order Setting Scheduling and
 8   Case Management Conference on March 15, 2011.    That order informed
 9   Serron and other interested parties “that based upon the Court’s
10   records and evidence presented at the status conference, the Court
11   may take any of the following actions at the status conference (or
12   at any continued hearing) without further notice:    1.   Dismiss the
13   case[.]”    A copy of that order was electronically served on the
14   attorney for Serron.
15        The U.S. Trustee (“UST”) moved to dismiss, or to convert the
16   Serron chapter 11 case to a chapter 7 case, on June 13, 2011.      The
17   UST alleged that Serron had failed to file a variety of documents,
18   including monthly reports, tax returns, and sales receipts, among
19   others.     After Serron substantially complied with the UST’s
20   demands, the UST withdrew its motion to dismiss or convert on
21   July 15, 2011.
22        Pacifica filed a motion for relief from stay in the Serron
23   bankruptcy case on August 26, 2011.     Pacifica alleged cause for
24   relief existed under § 362(d)(1) (alleging as “cause,” lack of an
25   adequate equity cushion, declining fair market value, and lack of
26
          5
            Later, in response to the U.S. Trustee’s motion to dismiss,
27   Serron admitted that the only cash asset listed in the schedules
     was the $500 its principal had deposited in the bank at the time
28   of the petition filing to fund a DIP account.

                                       -4-
 1   payments), § 362(d)(2)(A) (alleging that Serron lacked equity in
 2   the Property), § 362(d)(3) (alleging that Serron had failed to
 3   file a confirmable plan in the single asset real estate case, or
 4   to commence payments, within 90 days of the bankruptcy filing),
 5   and § 362(d)(4) (alleging that the bankruptcy filing was part of
 6   scheme to defraud creditors).   At that time, the payments on the
 7   Pacifica first deed of trust had been in default for fifteen
 8   months.
 9        The bankruptcy court conducted a continuing status conference
10   and hearing on Pacifica’s motion for relief from stay on
11   September 22, 2011.   Tr. Hr’g I-ii, September 22, 2011.   Counsel
12   for Serron, Pacifica, and the UST were present and heard.      After
13   reviewing the evidence and hearing from counsel, the bankruptcy
14   court granted relief from stay to Pacifica.   As to § 362(d)(2),
15   the court ruled that the appraisals submitted into evidence “are
16   insufficient to show adequate value or any equity to protect
17   [Pacifica].”   Tr. Hr’g 10:8-10, September 22, 2010.   As to
18   § 362(d)(4), the court ruled “the transfer of [a] fractional
19   interest [by Serron to Weissman] prepetition indicates that this
20   is an abusive case solely for delay purposes in bad faith.”     Tr.
21   Hr’g 10:21-23.
22        And as to § 362(d)(3), the bankruptcy court observed that
23   Serron had failed to contest that cause for stay relief existed
24   under this Code provision in its opposition or briefing.    The
25   court presumed that Serron’s case was a single asset real estate
26   case, and thus, its failure to submit a plan within 90 days, or
27   begin payments to Pacifica, was grounds for relief from stay under
28

                                     -5-
 1   § 362(d)(3).6   But the court went on to note that “even if that
 2   were not the case,” Serron had presented “absolutely no plan and
 3   [made] no progress towards reorganization in nine months[.]”   Tr.
 4   Hr’g 9:17-19.   Finally, the bankruptcy court noted that the UST
 5   had advised the court that Serron was again failing to provide
 6   requested documents, and the court expressed concern that if
 7   relief from the stay were granted to Pacifica concerning Serron’s
 8   only asset, there would be nothing to reorganize and the
 9   bankruptcy case should not go forward.   For these reasons, the
10   bankruptcy court therefore granted Pacifica relief from stay under
11   § 362(d)(2),(3) and (4).   However, it also decided that the
12   bankruptcy case should be dismissed.
13        An order granting Pacifica relief from stay was entered on
14   October 19, 2011.   An order dismissing the bankruptcy case was
15   entered a few days later, on October 24, 2011.   In the dismissal
16   order, the bankruptcy court amplified its grounds: “The Debtor has
17   failed to confirm a plan of reorganization and it appeared as if
18   the Debtor was not going to be able to reorganize its debts based
19   on the fact that the Court granted relief to the secured creditor
20   to pursue its state court remedies against the Debtor’s sole
21   asset.   In addition, the Debtor was not in compliance with the
22
          6
            At oral argument before the Panel, Serron insisted that
23   § 362(d)(3) was inapplicable in its bankruptcy case, and that the
     bankruptcy court had erred by assuming that Serron’s case was a
24   single asset real estate case. See § 101(51B) (defining “single
     asset real estate” to exclude “residential real property with
25   fewer than 4 residential units . . . .”). However, the bankruptcy
     court’s stay relief order is not before the Panel in this appeal.
26   In making its decision on dismissal, the bankruptcy court did not
     rely on the conclusion that Serron’s case was a single asset real
27   estate case, but instead concluded that Serron had not confirmed a
     plan, could not confirm a plan, and had failed to comply with the
28   UST Guidelines.

                                      -6-
 1   United States Trustee Chapter 11 Notices and Guides.”
 2        Serron filed a notice of appeal regarding the order to
 3   dismiss the bankruptcy case on November 7, 2011.    This is the
 4   appeal now before the Panel, No. CC-11-1625.    On the same day,
 5   Serron filed a notice of appeal concerning the order granting stay
 6   relief to Pacifica, No. CC-11-1626.     This was nineteen days after
 7   entry of the stay relief order.    Because Rule 8002(a) requires
 8   that a notice of appeal be filed within fourteen days of entry of
 9   the order on appeal, Serron’s failure to timely appeal the stay
10   relief order divested the Panel of jurisdiction to hear the
11   appeal.   Preblich v. Battley, 181 F.3d 1048, 1056 (9th Cir. 1999).
12   See also Disabled Rights Action Comm. v. Las Vegas Events, Inc.,
13   375 F.3d 861, 869 (9th Cir. 2004)(filing of effective notice of
14   appeal is a nonwaivable jurisdictional requirement).    After notice
15   to Serron, on April 26, 2012, the Panel entered an order
16   dismissing the stay relief appeal as untimely.    As a result, this
17   decision addresses only the bankruptcy court’s order dismissing
18   Serron’s bankruptcy case.
19                               JURISDICTION
20        The bankruptcy court had subject matter jurisdiction under
21   28 U.S.C. §§ 1334 and 157(b)(2)(A).     The Panel has jurisdiction
22   under 28 U.S.C. § 158.
23                                  ISSUE
24        Whether the bankruptcy court abused its discretion in
25   dismissing Serron’s bankruptcy case.
26                            STANDARD OF REVIEW
27        We review the bankruptcy court’s order dismissing a
28   chapter 11 case under § 1112(b) for abuse of discretion.    Marsch

                                       -7-
 1   v. Marsch (In re Marsch), 36 F.3d 825, 828 (9th Cir. 1994); St.
 2   Paul Self Storage Ltd. P’ship v. The Port Authority of the City of
 3   St. Paul (In re St. Paul Self Storage), 185 B.R. 580, 582 (9th
 4   Cir. BAP 1995).
 5        In applying an abuse of discretion test, we first "determine
 6   de novo whether the [bankruptcy] court identified the correct
 7   legal rule to apply to the relief requested."   United States v.
 8   Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).    If the
 9   bankruptcy court identified the correct legal rule, we then
10   determine whether its "application of the correct legal standard
11   [to the facts] was (1) illogical, (2)implausible, or (3) without
12   support in inferences that may be drawn from the facts in the
13   record."   Id. (internal quotation marks omitted).   If the
14   bankruptcy court did not identify the correct legal rule, or its
15   application of the correct legal standard to the facts was
16   illogical, implausible, or without support in inferences that may
17   be drawn from the facts in the record, then the bankruptcy court
18   has abused its discretion.   Id.
19                                DISCUSSION
20        As discussed above, this appeal focuses solely on the
21   bankruptcy court’s order dismissing Serron’s bankruptcy case.     In
22   that respect, the procedural status of this appeal is problematic
23   for Serron.
24        Although, with the Panel’s permission, the parties filed
25   joint briefs in Serron’s two appeals of the stay relief and
26   dismissal orders, Serron’s briefs address only its position
27   concerning the order granting Pacifica relief from stay.      Except
28   for a cryptic reference to the order dismissing the case in its

                                        -8-
 1   statement of issues in its opening brief, Serron’s Op. Br. at 2,
 2   Serron’s briefs offer no discussion or analysis of its position
 3   that the bankruptcy court erred in dismissing its chapter 11 case.
 4        As the Ninth Circuit recently pointed out, as an appellate
 5   tribunal, “[w]e review only issues which are argued specifically
 6   and distinctly in a party's opening brief.”   Leigh v. Salazar,
 7   677 F.3d 892, 897 (9th Cir. 2012) (quoting Greenwood v. Fed.
 8   Aviation Admin., 28 F.3d 971, 977 (9th Cir. 1994)).    Moreover, an
 9   argument will not be saved by a mere summary mention in a party’s
10   opening brief.   UMG Recordings, Inc. v. Shelter Capital Partners,
11   LLC, 667 F.3d 1022, 1031 (9th Cir. 2011).
12        After Pacifica observed in its brief that Serron had failed
13   to argue grounds for its appeal of the dismissal order, Serron
14   inexplicably compounded its error by failing to provide arguments
15   concerning the dismissal order in its reply brief, making but a
16   single conclusory observation: “Dismissal was plainly based on the
17   fact that the estate, after a finding for relief, had been
18   divested of its largest asset.”    Serron Reply Br. at 7.   Simply
19   put, nowhere in Serron’s briefs is there any developed argument or
20   authority that the bankruptcy court abused its discretion in
21   dismissing the bankruptcy case.
22        On the other hand, the record discloses the existence of
23   ample cause to justify the bankruptcy court’s decision to dismiss.
24   In its comments on the record, and in its formal order, the
25   bankruptcy court expressed a variety of reasons why it should
26   exercise its discretion to dismiss — that Serron had failed to
27   propose a confirmable plan; that it appeared Serron would be
28   unable to reorganize because Pacifica had been given permission to

                                       -9-
 1   foreclose its trust deed on Serron's sole asset; and that Serron
 2   had not complied with the UST’s operating guidelines.   The Code
 3   and case law make clear that these concerns constitute adequate
 4   cause for dismissal of a bankruptcy case.
 5         The statutory authority for dismissal of a chapter 11 case,
 6   § 1112(b), provides that “the court shall convert a case under
 7   this chapter to a case under chapter 7 or dismiss a case under
 8   this chapter, whichever is in the best interests of creditors and
 9   the estate, for cause unless the court determines that the
10   appointment . . . of a trustee or examiner is in the best interest
11   of the creditors and the estate.”   § 1112(b)(1).   Thus, if cause
12   is present, the court must grant relief and determine whether
13   dismissal, conversion, or appointment of a trustee or examiner is
14   in the best interest of creditors and the estate.   Once cause has
15   been established, under § 1112(b)(2), the burden shifts to the
16   party opposing conversion, dismissal, or appointment of a trustee
17   or examiner.   Explaining the operation of this provision, the
18   bankruptcy court in In re Orbit Petroleum, Inc., 395 B.R. 145, 148
19   (Bankr. D.N.M. 2008), noted:
20        Once "cause" has been demonstrated, the Court must
          convert or dismiss, unless the Court specifically
21        identifies "unusual circumstances . . . that establish
          that such relief is not in the best interest of
22        creditors and the estate." 11 U.S.C. § 1112(b)(1).
          However, absent unusual circumstances, the court must
23        not convert or dismiss a case if (1) there is a
          reasonable likelihood that a plan will be confirmed
24        within a reasonable time, (2) the "cause" for dismissal
          or conversion is something other than a continuing loss
25        or diminution of the estate coupled with a lack of
          reasonable likelihood of rehabilitation; and (3) there
26        is reasonable justification or excuse for a debtor's act
          or omission and the act or omission will be cured in a
27        reasonable time.
28        "Cause" for dismissal is not defined in the Code; instead,

                                     -10-
 1   the Code contains a non-exclusive list of examples of cause in
 2   § 1112(b)(4).   In re Marsch, 36 F.3d at 828.   Among the reasons
 3   listed providing an adequate basis for dismissal of a chapter 11
 4   case are: “substantial or continuing loss to or diminution of the
 5   estate and the absence of a reasonable likelihood of
 6   rehabilitation”, § 1112(b)(4)(A); and “failure timely to provide
 7   information or attend meetings reasonably requested by the United
 8   States trustee (or the bankruptcy administrator, if any),”
 9   § 1112(b)(4)(H).   Fairly interpreting the comments and order of
10   the bankruptcy court, the record demonstrates these two causes for
11   dismissal were present in Serron’s case.
12        Section 1112(b)(4)(A) "provides the bankruptcy court with the
13   requisite authority to terminate a chapter 11 case based on a
14   showing of unreasonable delay, or continuing losses coupled with
15   the absence of a reasonable likelihood of rehabilitation, or
16   inability to effectuate a plan of reorganization."   United Sav.
17   Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd. (In re
18   Timbers of Inwood Forest Assocs., Ltd.), 808 F.2d 363, 371 (5th
19   Cir. 1987) (en banc), aff'd 484 U.S. 365 (1988); Sun Valley
20   Newspapers v. Sun World Corp. (In re Sun Valley Newspapers),
21   171 B.R. 71, 74 (9th Cir. BAP 1994) (citing Timbers of Inwood
22   Forest Assocs. for the proposition that there must be "a
23   reasonable possibility of a successful reorganization within a
24   reasonable time.").   In connection with this statutory provision,
25   the bankruptcy court must “evaluate each debtor's viability and
26   rate of progress in light of the ‘best interest of creditors and
27   the estate.’"   Timbers of Inwood Forest Assocs., 808 F.2d at 372.
28        Section 1112(b)(4) is often invoked by bankruptcy courts when

                                     -11-
 1   a chapter 11 debtor’s assets are swiftly being reduced.      Here,
 2   however, in one stroke, the bankruptcy court potentially reduced
 3   the assets of Serron’s bankruptcy estate available for
 4   reorganization to zero.   Allowing the major secured creditor to
 5   foreclose on Serron’s one and only significant asset constitutes a
 6   classic cause for dismissal of a reorganization case.      In re
 7   Jer/Jameson Mezz Borrower II, LLC, 461 B.R. 293, 302 (Bankr. D.
 8   Del. 2011) (where chapter 11 debtor is not operating and sole
 9   asset is fully encumbered, dismissal under § 1112(b)(4) is
10   mandatory); see Kenneth N. Klee, One Size Fits All: Single Asset
11   Real Estate Bankruptcy Cases, 87 CORNELL L. REV. 1285, 1308
12   (September 2002) (“If . . . the mortgage holder gets relief from
13   the automatic stay and the right to foreclose on the property
14   . . . the Chapter 11 case is over.       Although this might be good
15   news for the mortgage holder, it is bad news for the property
16   owner who loses the opportunity to reorganize.”).
17        Under the facts of this case, the bankruptcy court did not
18   abuse its discretion when it found that, because it had granted
19   stay relief to Pacifica, Serron’s ability to propose and confirm a
20   plan of reorganization was lost.    Continuing the bankruptcy case
21   where there is no possibility of reorganization cannot be in the
22   best interest of the creditors.
23        The UST had, earlier in the bankruptcy case, moved for
24   dismissal because Serron had failed to comply with its duty to
25   file documents and reports about its operations.      The UST has a
26   statutory duty and authority to require, monitor and seek court
27   enforcement of a chapter 11 debtor’s compliance with the UST’s
28   guidelines and reports.   28 U.S.C. § 586(a)(3)(D).     Although the

                                       -12-
 1   UST withdrew its motion when Serron complied with its demands, at
 2   the hearing on September 22, 2011, the UST informed the bankruptcy
 3   court that Serron again was in arrears on its obligations to
 4   provide information.   It is of no moment that there was no current
 5   motion from the UST to dismiss the case.    The Panel long ago
 6   recognized that a bankruptcy court has the authority, sua sponte,
 7   to dismiss a bankruptcy case for cause.    Tennant v. Rojas (In re
 8   Tennant), 318 B.R. 860, 869 (9th Cir. BAP 2004) (“Section 105(a)
 9   makes ‘crystal clear’ the court's power to act sua sponte where no
10   party in interest or the United States trustee has filed a motion
11   to dismiss a bankruptcy case.”); see also C-TC 9th Ave. P'ship v.
12   Norton Co. (In re C-TC 9th Ave. P'ship), 113 F.3d 1304, 1312 (2d
13   Cir. 1997) (“When the record is sufficiently well developed to
14   allow the bankruptcy court to draw the necessary inferences to
15   dismiss a Chapter 11 case for cause, the bankruptcy court may do
16   so.”).   Serron was offered an opportunity at the September 22,
17   2011 hearing to respond to the UST’s allegation about its failure
18   to comply with reporting requirements, but did not challenge the
19   UST’s assertion or request more time to comply.   The bankruptcy
20   court could therefore properly conclude that, under
21   § 1112(b)(4)(H), cause also existed to dismiss the bankruptcy case
22   for Serron’s failure to comply with the UST’s information
23   requests.
24        In sum, Serron has not provided any argument or authority to
25   support its challenge to the bankruptcy court’s order dismissing
26   the case.   Moreover, the bankruptcy court’s order is consistent
27   with the statutory provisions governing dismissals in chapter 11,
28   § 1112(b), and the court’s findings and conclusions in this case

                                     -13-
 1   were not illogical, implausible, or without support in the
 2   inferences that may be drawn from the facts in the record.
 3                               CONCLUSION
 4        The bankruptcy court did not abuse its discretion in
 5   dismissing Serron’s chapter 11 bankruptcy case.   We AFFIRM.
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                                    -14-