405 N. Bedford Dr. Corp., In re

• Decision Date: 17 December 1985
• Docket Number: No. 84-5939,84-5939
• Citation: 778 F.2d 1374
• Parties: , Bankr. L. Rep. P 70,886 In re 405 N. BEDFORD DR. CORP., a California Corporation, Debtor. James FARBER and Lucy Farber Mattingly, Plaintiffs-Appellants, v. 405 N. BEDFORD DR. CORP., a California Corporation, Defendant-Appellee. Ninth Circuit
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1374

778 F.2d 1374

13 Bankr.Ct.Dec. 1375, Bankr. L. Rep. P 70,886

In re 405 N. BEDFORD DR. CORP., a California Corporation, Debtor James FARBER and Lucy Farber Mattingly, Plaintiffs-Appellants, v. 405 N. BEDFORD DR. CORP., a California Corporation Defendant-Appellee.

No. 84-5939.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted March 7, 1985.

Decided Dec. 17, 1985.

James Dale, Louise D. Dale, Dale & Dale, Los Angeles, Cal., for plaintiffs-appellants.

Peter R. Stoll, Los Angeles, Cal., for defendant-appellee.

An Appeal from the United States District Court for the Central District of California.

Before FLETCHER, PREGERSON and HALL, Circuit Judges.

PREGERSON, Circuit Judge:

FACTS

On May 1, 1979, Elliot Feldman, the owner of a piece of property in Beverly Hills known as 405 North Bedford Drive, executed promissory notes in favor of James Farber; Lucy Farber Mattingly; United California Bank and Isaac Pacht, as co-trustees under the will of Simeon Aller; ¹ and Vivian Kaye ("the beneficiaries"). Feldman secured all four notes by a single first deed of trust on the property. The deed of trust provided that all outstanding debt would be "accelerated"--currently due and payable--upon Feldman's failure to make a monthly payment.

Sometime around February 1982, Feldman began failing to make the required monthly payments to the four beneficiaries under the first deed of trust. Consequently, on April 13, 1982, the beneficiaries moved in California Superior Court for the appointment of a receiver, and on May 14, 1982, the court appointed one.

In the meantime, DMG, Ltd., a partnership owning virtually all of the property adjacent to 405 North Bedford Drive, created a wholly owned subsidiary, 405 N. Bedford Dr. Corp ("the corporation"). On April 26, 1982, the corporation purchased 405 North Bedford Drive ("the property") from Feldman. At that time, the property was also encumbered by liens junior to the first deed of trust.

After four months of unsuccessful negotiations with the junior trust deed holders on the property, the corporation filed a voluntary petition under chapter 11 of the Bankruptcy Code on August 27, 1982. This petition activated the "automatic stay" provided by section 362 of the Bankruptcy Code, ² and prevented the beneficiaries On September 29, 1982, Farber and Mattingly filed a petition for relief from the automatic stay. ³ The bankruptcy court granted their request, permitting them to pursue a foreclosure. On February 2, 1983, First Interstate and Kaye also filed a petition for relief from the automatic stay, which the bankruptcy court likewise granted.

under the first trust deed from pursuing a foreclosure.

But, due to problems among themselves, the beneficiaries had not yet foreclosed on October 14, 1983, when the corporation filed its proposed plan of reorganization with the bankruptcy court. On November 17, 1983, the corporation also filed a motion to "cure" the defaults under the first deed of trust pursuant to 11 U.S.C. Sec. 1124. ⁴ In response, on December 2, 1983, the four beneficiaries filed a motion to dismiss the bankruptcy case pursuant to 11 U.S.C. Sec. 1112(b). ⁵ The bankruptcy court ruled on both motions on December 28, 1983. The court granted the corporation's request to cure the defaults and denied the beneficiaries' motion to dismiss. Farber and Mattingly appealed to the United States District Court, but the district court affirmed the bankruptcy court's decision on April 30, 1984. Farber and Mattingly then appealed to this court.

Meanwhile, on January 31, 1984, the bankruptcy court entered an order confirming the corporation's proposed plan of reorganization. On March 1, 1984, Farber and Mattingly filed with the bankruptcy court an application to stay the order confirming the plan. They also requested "that the Court make whatever Order or Orders as are necessary to protect [their] position and preserve to [them] the benefits which would be obtained upon successful determination of ... the Appeal from the Order denying the motion to dismiss the chapter 11 proceedings and the contemplated appeal from the Order Confirming the Debtor's Plan." The bankruptcy court denied their request for a stay on March 5, 1984.

On April 1, 1984, Farber and Mattingly appealed to the district court from the bankruptcy court's order confirming the plan. This appeal is presently before U.S. District Judge Irving Hill, who has stayed the proceedings pending our decision.

DISCUSSION

I. Finality in Bankruptcy Proceedings.

Section 104(a) of the Bankruptcy Amendments and Federal Judgeship Act of 1984 Pub.L. No. 98-353, 98 Stat. 333, governs our jurisdiction in this case. Section 104(a) added a new section 158 to Title 28, replacing 28 U.S.C. Sec. 1293 (1982), formerly governing our jurisdiction in bankruptcy appeals. Under section 158(d), we have jurisdiction of "appeals from all final decisions, judgments, orders, and decrees" of district courts reviewing decisions of bankruptcy courts. 98 Stat. at 341 (to be codified at 28 U.S.C. Sec. 158(d)).

Because former section 1293 also referred to final judgments, orders, or decrees as the basis for appellate court jurisdiction in bankruptcy cases, our previous decisions discussing finality under section 1293 are applicable in this case involving section 158. Teleport Oil Co. v. Security Pacific National Bank (In re Teleport Oil Co.), 759 F.2d 1376, 1377 n. 1 (9th Cir.1985).

Under former section 1293, "we adopted a test that emphasizes the need for immediate review, rather than whether the order is technically interlocutory, in determining what is appealable as a final judgment in bankruptcy proceedings." White v. White (In re White), 727 F.2d 884, 885 (9th Cir.1984) (citing Mason v. Integrity Insurance Co. (In re Mason), 709 F.2d 1313 (9th Cir.1983)). Those orders that " 'may determine and seriously affect substantive rights' and 'cause irreparable harm to the losing party if it had to wait to the end of the bankruptcy case' " are immediately appealable, In re Mason, 709 F.2d at 1316 (quoting R. Levin, Bankruptcy Appeals, 58 N.C.L.Rev. 967, 985-86 & n. 140 (1980)), so long as the orders "finally determine the discreet [sic] issue to which [they are] addressed...." Four Seas Center, Ltd. v. Davres, Inc. (In re Four Seas Center, Ltd.), 754 F.2d 1416, 1418 (9th Cir.1985). But "[w]hen further proceedings in the bankruptcy court will affect the scope of the order, the order is not subject to review in this court under [section 158]." Id.

In the instant case, the district court affirmed a bankruptcy court order which resolved two separate motions. We conclude that neither the bankruptcy court's denial of the beneficiaries' motion to dismiss the chapter 11 proceedings nor its grant of the corporation's motion to cure the defaults under the first deed of trust is final and reviewable in this court.

II. Denial of Motion to Dismiss for Bad Faith Under 11 U.S.C. Sec. 1112.

Farber and Mattingly brought a motion to dismiss the bankruptcy case under 11 U.S.C. Sec. 1112 on the ground that the corporation filed for bankruptcy under chapter 11 in bad faith. Section 1112 provides that the bankruptcy court "may dismiss a case under this chapter ... for cause...." 11 U.S.C. Sec. 1112(b) (1982) (amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, Sec. 505, 98 Stat. 333, 384-85). A number of courts have held that bad faith--i.e., filing under chapter 11 with the intent to abuse the reorganization process--is sufficient "cause" under section 1112 to dismiss a case. See, e.g., Meadowbrook Investors' Group v. Thirtieth Place, Inc. (In re Thirtieth Place, Inc.), 30 B.R. 503, 505 (Bankr. 9th Cir.1983); In re Spenard Ventures, Inc., 18 B.R. 164, 166 (Bankr.D.Alaska 1982). In the instant case, the bankruptcy court denied the beneficiaries' motion to dismiss, and the district court affirmed. The beneficiaries argue that the denial of their motion to dismiss is appealable to this court under the finality analysis we outlined above. We disagree.

The beneficiaries are not threatened with the possibility of irreparable harm if they cannot immediately appeal the district court's affirmance of the denial of their motion to dismiss. Although the beneficiaries will have to continue their participation in the reorganization process, their interests will be protected while they participate. See, e.g., 11 U.S.C. Secs. 361, 363(e) (right to adequate protection); 11 U.S.C. Sec. 362(d) (power to attain relief from automatic stay); 11 U.S.C. Sec. 363(f) (protecting interests of secured creditors when property is sold); 11 U.S.C. Sec. 1104 (power to have trustee or examiner appointed); 11 U.S.C. Sec. 1121 (power to propose a plan if one has not been proposed or approved within certain time periods). As secured creditors, the beneficiaries can protect their interests by moving the bankruptcy court to provide them adequate protection as defined by 11 U.S.C. Sec. 361, or by seeking relief from the automatic stay under 11 U.S.C. Sec. 362(d) if such protection is not provided.

Two prior decisions in which we recognized the potential for irreparable harm if similar bankruptcy orders were not immediately appealable are distinguishable from this case. In Mason v. Integrity Insurance Co. (In re Mason), 709 F.2d 1313 (9th Cir.1983), we held that the bankruptcy court's denial of the debtor's motion to vacate an order for relief entered on an involuntary bankruptcy petition was final and reviewable. Id. at 1315-18. We observed that "an order for relief [similar to a denial of a motion to dismiss] can be viewed as merely a decision that a bankruptcy case can continue" and does not meet the usual standard of finality. Id. at 1316. Nevertheless, we held that the denial of the debtor's motion to vacate an order for relief was final in light of the unique nature of bankruptcy procedure and therefore reviewable by this court. Id.

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