Commercial Western Finance Corp., In re

• Decision Date: 23 May 1985
• Docket Number: Nos. 83-1976,83-2034 and 83-2035,83-1977,83-2030,s. 83-1976
• Citation: 761 F.2d 1329
• Parties: 12 Collier Bankr.Cas.2d 1177, 13 Bankr.Ct.Dec. 352, Bankr. L. Rep. P 70,575 In re COMMERCIAL WESTERN FINANCE CORPORATION, a California Corporation, Debtor. Bernard J. BRADY and Paul L. Disderdick, Appellants, v. Paul B. ANDREW, Trustee, Appellee. Frank B. AMSBAUGH, et al., Appellants, v. Paul B. ANDREW, Appellee. Bailey TOPLIN, et al., Parties-in-Interest Appellants, v. COMMERCIAL WESTERN FINANCE CORP., Debtor-Appellant. Raymond E. BROOKS, et al., Claimants-Appellants, v. Paul B. ANDREW, Trustee-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1329

761 F.2d 1329

12 Collier Bankr.Cas.2d 1177, 13 Bankr.Ct.Dec. 352,

Bankr. L. Rep. P 70,575

In re COMMERCIAL WESTERN FINANCE CORPORATION, a California

Corporation, Debtor.

Bernard J. BRADY and Paul L. Disderdick, Appellants, v. Paul B. ANDREW, Trustee, Appellee.

Frank B. AMSBAUGH, et al., Appellants, v. Paul B. ANDREW, Appellee.

Bailey TOPLIN, et al., Parties-in-Interest Appellants, v. COMMERCIAL WESTERN FINANCE CORP., Debtor-Appellant.

Raymond E. BROOKS, et al., Claimants-Appellants, v. Paul B. ANDREW, Trustee-Appellee.

Nos. 83-1976, 83-1977, 83-2030, 83-2034 and 83-2035.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 13, 1985.

Decided May 23, 1985.

Constance B. Harriman, Sheppard, Mullin, Richter & Hampton, Los Angeles, Cal Dennis Montali, Michael H. Salinsky, Kathleen Piraino, Pillsbury, Madison & Sutro, San Francisco, Cal., for appellee.

Jerome B. Falk, Law Offices of Howard Rice, San Francisco, Cal., for appellants.

On Appeal From the United States District Court For the Northern District of California.

Before DUNIWAY, PREGERSON, and FERGUSON, Circuit Judges.

PREGERSON, Circuit Judge.

FACTS

Commercial Western Finance Corporation (CWF) arranged trust deed investments by soliciting money from individuals ("investors") and lending that money to other entities ("borrowers"). In exchange for the funds from CWF, the borrowers gave CWF promissory notes ("borrower notes") secured by deeds of trust on California real estate ("deeds of trust"). In exchange for the funds from the investors, CWF gave the investors its own promissory notes ("CWF notes") secured by partial assignments of the borrower notes and deeds of trust.

CWF usually recorded the partial assignments in the county where the property is located. CWF gave the investors copies of the partial assignment deeds of trust, the borrower notes, and borrower deeds of trust, but retained possession of the original borrower notes and deeds of trust.

On September 4, 1981, CWF filed a voluntary petition under chapter 11 of the Bankruptcy Code. On November 10, 1981, the bankruptcy court appointed a chapter 11 trustee for the CWF estate. The Trustee filed a chapter 11 plan of reorganization and a disclosure statement ¹ on November 19, 1982. The bankruptcy court held a hearing on the disclosure statement on December 13, 1982. The next day, the Trustee filed, and the bankruptcy court approved, an amended plan and disclosure statement.

In the disclosure statement, the Trustee challenged the enforceability of CWF's partial assignments of the borrower notes and deeds of trust. He first asserted that the partial assignments were not true assignments, but merely created security interests in the notes and deeds of trust. He then argued that section 544 of the Bankruptcy Code, 11 U.S.C. Sec. 544 (1982), in conjunction with Cal.Com.Code Secs. 9301(1)(b) & 9304(1), entitled him to avoid these security interests. ²

The Trustee contended that the investors never perfected their security interests in the borrower notes and deeds of trust because (1) the borrower notes and deeds of trust are instruments under the California Commercial Code and (2) the investors never obtained possession of these instruments, which is required to perfect the interests under California law. Therefore, the Trustee asserted that, as a judicial lien creditor under section 544, he was entitled to avoid the investors' interest in the borrower notes and deeds of trust.

Instead of filing adversary actions against all of the investors to avoid their security interests, the Trustee proposed a compromise as part of the plan: the investors would be paid more than the general Between December 14, 1982, and January 13, 1983, the investors voted on the plan. Out of approximately 333 investors, 7 filed written objections to the plan, and 84 voted to accept it. On January 17, 1983, the bankruptcy court held a hearing on the Trustee's request for confirmation of the plan. One of the investors, Raymond Brooks, appeared and objected to the Trustee's proposed treatment of his claim under the plan. The court entered Findings of Fact and Conclusions of Law re Confirmation of the Trustee's Amended Chapter 11 Plan, an Order Confirming the Plan, and certified the findings and order for appeal to the district court pursuant to the "Marathon Emergency Rule," General Order 24, section (e)(2)(A)(ii), of the District Court for the Northern District of California. ³

unsecured creditors, but would relinquish any claim to the borrower notes, deeds of trust, or the property secured by the deeds of trust.

On April 14, 1983, the district court entered its order approving the bankruptcy court's findings of fact and conclusions of law and confirming the plan. On May 16, 1983, four investors filed two notices of appeal pursuant to Fed.R.App.P. 4(a)(1). ⁴ On May 27, 1983, 89 investors filed a notice of appeal pursuant to Fed.R.App.P. 4(a)(3). ⁵ On May 31, 1983, 90 investors, including Brooks, filed two more notices of appeal pursuant to Fed.R.App.P. 4(a)(3). The Ninth Circuit Conference Attorney ordered these appeals consolidated on September 7, 1983.

The Trustee filed a motion to dismiss the consolidated appeals on September 19, 1983, arguing (1) that none of the investors except Brooks have standing because they did not appear at the confirmation hearing and voice their objections and (2) that Brooks's appeal was untimely. On December 13, 1983, a panel of this court denied the Trustee's motion to dismiss. The investors now ask this panel to address the substantive issues raised in their briefs and the Trustee raises the standing issues again in defense. ⁶

ISSUES

I. Whether investors who did not appear and object to the plan at the confirmation hearing have standing to appeal the order confirming the plan.

II. Whether Brooks, who did attend the hearing, filed a timely appeal pursuant to Fed.R.App.P. 4(a)(3).

III. Whether the Bankruptcy Rules required the Trustee to file individual adversary actions against all of the investors whose security interests he wished to avoid, rather than permitted him to eliminate those interests IV. Whether section 1122 of the Bankruptcy Code required the Trustee to place each investor in a separate class in the plan, rather than permitted him to place all of the investors in one class.

by a motion to confirm a chapter 11 plan.

STANDARDS OF REVIEW

I. Standing.

Because the bankruptcy court certified its order confirming the plan for appeal to the district court pursuant to General Order 24, the district court did not consider whether the investors had standing to appeal the order. Therefore, we are the first court to consider the standing issue.

II. Timeliness.

The issue whether Brooks filed a timely appeal pursuant to Fed.R.App.P. 4(a)(3) was not before the district court. We will address this issue concerning our jurisdiction.

III. Proper Procedure for Lien Avoidance.

The bankruptcy court confirmed the Trustee's proposed plan without addressing the fact that the plan's avoidance of the investor's security interests violated the rules of bankruptcy procedure by circumventing the notice requirements for adversary proceedings. The bankruptcy court simply ruled in the Trustee's favor on the merits, implicitly approving the procedure employed. The district court affirmed. ⁷

Because we are in as good a position as the district court to review the findings of the bankruptcy court, we independently review the bankruptcy court's decision. See, e.g., In re Mellor, 734 F.2d 1396, 1399 (9th Cir.1984); In re Comer, 723 F.2d 737, 739 (9th Cir.1984); In re Bialac, 712 F.2d 426, 429 (9th Cir.1983). ⁸ We review the bankruptcy court's findings of fact under the clearly erroneous standard and its conclusions of law de novo. In re American Mariner Industries, Inc., 734 F.2d 426, 429 (9th Cir.1984).

Whether the Trustee followed the proper procedures to avoid the investors' security interests involves a question of law that we review de novo. See In re McKay, 732 F.2d 44 (3d Cir.1984) (without discussing the standard of review, the Third Circuit reversed the bankruptcy court's order confirming a chapter 13 plan because the plan violated the rules of bankruptcy procedure).

IV. Classification.

The bankruptcy court may confirm a plan only if the plan designates classes of claims, 11 U.S.C. Sec. 1123(a)(1), and places only "substantially similar" claims in the same class. 11 U.S.C. Sec. 1122(a). The bankruptcy court made no express finding whether the investors' claims, which the Trustee placed in the same class, were substantially similar. However, the bankruptcy court did find that the plan complied with the applicable provisions of chapter 11, which would include section 1122(a). Because the bankruptcy court's implicit determination that the investors' claims were substantially similar resolves a question of fact, we review it under the clearly erroneous standard. Cf. In re Palisades-On-The-Desplaines, 89 F.2d 214, 217 (7th Cir.1937) (lower court has "broad latitude" in classifying claims under analogous provision of former Bankruptcy Act).

DISCUSSION

I. Whether investors who did not appear and object to the plan at the confirmation hearing have standing to appeal the order confirming the plan.

The Bankruptcy Act of 1898 contained an explicit provision, section 39(c), which permitted appeal by any "person aggrieved by an order of a referee." 11 U.S.C. Sec. 67(c) (1976) (repealed 1978). Although the Bankruptcy Code of 1978 contains no parallel provision, we have adopted the "person aggrieved" test as the appropriate standard for determining standing to appeal under the Code. In re Fondiller, 707 F.2d 441, 443 (9th Cir.1983). One question this appeal raises, therefore, is whether the investors' failure to appear at the bankruptcy hearing and object to the proposed order forecloses them from meeting the definition of "persons aggrieved."

The Fondiller court...