In re Brock, Case No. 10-32881 MER
| Decision Date | 28 June 2013 |
| Docket Number | Case No. 10-32881 MER |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado |
| Parties | In re Lawrence A. Brock, Diane Melree Brock, Debtors. |
OPINION TEXT STARTS HERE
Glenn W. Merrick, 6300 S. Syracuse Way, Suite 220, Greenwood Village, CO 80111, Joseph G. Rosania, 950 Spruce St., Suite 1C, Louisville, CO 80027, for Diane Melree Brock and Lawrence A. Brock, 2237 4th Street, Boulder, CO 80302, Debtors.
This matter comes before the Court on the Debtors' Objection to Claim Number 11 Filed by Bank of the West (Docket No. 90) (the “Objection”), and Bank of the West's response thereto (Docket No. 106) (the “Response”).1 The Bank loaned funds to the Debtors' revocable inter vivos trust, and the Debtors personally guaranteed the obligation. The trust debt was secured by certain real property in California, and the Bank foreclosed on its collateral post-petition. The ultimate issue before the Court is whether to allow the Bank's unsecured deficiency claim against the Debtors pursuant to a personal guaranty.
The issue is complicated by a choice of law dispute, specifically whether California anti-deficiency law controls the transaction between the Bank, the trust and the Debtors. For the reasons stated below, and with all due respect to the official slogan of Las Vegas, it appears what happens in California, stays in California.
The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334(a) and (b) and 157(a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (B), as it involves the administration of a bankruptcy estate and the allowance or disallowance of claims against the estate.
In 1995, Lawrence and Diane Brock (the “Debtors”) moved from California to Colorado to be close to Diane Brock's ailing, elderly father. The same year, the Debtors created and settled the Lawrence A. Brock and Diane Melree Brock Revocable Inter Vivos Trust (the “Brock Trust”). The Debtors are the joint settlors, co-trustees, and beneficiaries of the Brock Trust and maintained those roles and duties at all times relevant to this case.3 Although the Debtors physically executed the trust documents in Colorado, the Debtors elected to have the trust's validity governed by California law.4
In 2007, the Debtors planned to return to California and began looking for investment properties there. Mr. Brock searched online and located a commercial property at 305 Forest Avenue in Laguna Beach, California (the “Laguna Property”). The Laguna Property was owned by “Asset Services, Inc., as QI for Forest Avenue Partners” (“Forest Avenue Partners”), an entity controlled by Alec J. Glasser (“Glasser”). Mr. Brock traveled to California to view the property, and to meet with Glasser and the listing agent. Mr. Brock then retained a real estate broker and began negotiating to purchase the Laguna Property.
On December 17, 2007, Park Center Exchange I, LLC (“Park Center”), an entity then controlled by the Debtors, purchased the Laguna Property from Forest Avenue Partners. The sales price was $4,037,733.08, of which $1,065,000 was from Park Center, $2,450,000 from a new loan from AJG Property LP (“AJG”) (another entity controlled by Glasser), and $500,000 from a loan from the Alec J. Glasser DefinedBenefit Pension Plan (the “Glasser Pension Plan”), another Glasser entity. The Laguna Property was pledged as security for both the $2,450,000 note (the “AJG Note”) and the $500,000 note. According to Glasser, the Debtors agreed to refinance the AJG Note by March 17, 2008.
On May 22, 2008, the Brock Trust closed on a $2,600,000 loan from Bank of the West (the “Bank”), a California banking corporation. The Bank's loan enabled the Brock Trust to payoff the AJG Note in full, and obtain title to the Laguna Property.5 The Debtors, the Brock Trust, Glasser, the Glasser Pension Plan, and the Bank entered into a Subordination Agreement, under which the deed of trust securing the remaining $500,000 note was subordinated to the Bank's deed of trust against the Laguna Property. As a result, the Bank's loan was secured by a senior mortgage against the Laguna Property.6
At closing, the Debtors, in their capacity as trustees of the Brock Trust, executed certain documents, including a Term Loan Agreement, SWAP Agreement, and Promissory Note. As part of the same transaction, the Debtors also executed and delivered a personal guaranty to the Bank (the “Guaranty”). The Bank drafted the Term Loan Agreement, Promissory Note and Guaranty which, according to their terms, are each governed by California law.7 However, the SWAP Agreement, which was executed as part of the Term Loan Agreement, states it is governed by New York law.8 On June 26, 2008, the Debtors and the Bank entered into a Loan Modification Agreement, which expressly provides it is governed by California law.9
On September 8, 2010, the Debtors filed their petition for relief under Chapter 11 of the Bankruptcy Code. One month later, the Debtors and the Bank filed a Motion to Approve Stipulation for Relief from the Automatic Stay regarding the Laguna Property (“Relief From Stay Stipulation”). The Court granted the Relief From Stay Stipulation, and on June 17, 2011, the Bank conducted a non-judicial foreclosure sale of the Laguna Property under California law. The Bank was the successful bidder and acquired the Laguna Property for $1,597,500.10
On December 23, 2010, the Court granted the Debtors' request for a bar date, with proofs of claim due by February 11, 2011. Glasser (Proof of Claim No. 10) and the Bank (Proof of Claim No. 11) timely filed their respective proofs of claim. On June 15, 2011, the Debtors filed two claims objections, one against Glasser and one against the Bank.11 The objection to the Bank's claim is currently before the Court.
In their Objection,12 the Debtors seek disallowance of the Bank's claim, as amended, for two reasons. First, the Debtors assert the Bank cannot hold any claim against the Debtors under the Guaranty until the Bank completes a foreclosure sale. This objection is now moot because the Bank foreclosed on the Laguna Property pursuant to the Court's Order approving the Relief From Stay Stipulation, and thus, the Bank's unsecured deficiency claim against the Debtors is now liquidated.
Second, the Debtors argue under California law, the Guaranty is unenforceable. The Debtors admit they gave the Bank the Guaranty, and highlight the original Promissory Note, the Bank's deed of trust and the Guaranty are each expressly governed by California law. The Debtors argue 13
On July 15, 2011, the Glasser Pension Plan filed a Response to the Debtors' Objection to the Bank's Claim,14 joining in the Debtors' Objection to the Bank's claim, and asserting the Bank cannot hold a deficiency claim against the Debtors under California law. The Glasser Pension Plan also requests this Court disallow the Bank's claim in its entirety.
On July 15, 2011, the Bank filed its Response to the Debtors' Objection, 15 stating the Debtors had personally guaranteed all amounts due under the note executed by the Brock Trust. The Bank also confirmed the foreclosure of its interest against the Laguna Property under the terms of the Promissory Note. With respect to the Debtors' remaining objection to its claim, the Bank asserts: 1) the amount of the deficiency is $1,317,724.30 and the Bank is the holder of a liquidated unsecured claim against the Debtors under the Guaranty; and 2) the Guaranty is a “true guaranty” and enforceable against the Debtors. In support, the Bank disputes the applicability of the California cases relied on by the Debtors.
The Bank's most recent amended proof of claim (Amended Proof of Claim No. 11–3) asserts an unsecured claim against the Debtors in the total amount of $1,317,724.30.16 It is undisputed this amount represents the remaining unsecured deficiency under the terms of the Guaranty.17
At the hearing on this matter, the parties stipulated to the admission of certain exhibits and the Court heard arguments.18 Following the hearing, the Court requested additional briefs on the issues of “[w]hether Colorado law or California law applies to the Term Loan Agreement, Loan Modification Agreement, Promissory Note, Guaranty, and deed of trust for the [Laguna] Property.” In addition, the Court asked the parties for additional authority on California's anti-deficiency law and waiver of such law. 19 The parties timely submitted their supplemental briefs.20
The Bank filed Amended Proof of Claim 11–3 in accordance with Fed. R. Bankr. P. 3001. “When the proof of claim is executed and filed in accordance with Fed. R. Bankr. P. 3001 (including Official Form 10), the proof of claim constitutes prima facie evidence of the validity and amount of the claim.” 21 Here, the Debtors (joined by the Glasser Benefit Plan) objected to the allowance of the Bank's prima facie valid claim, and had “the burden of going forward with evidence supporting the objection.” 22
The Debtors and the Glasser Benefit Plan allege the Guaranty is ineffective under California anti-deficiency law and certain California case law interpreting anti-deficiency legislation. As a consequence, the Debtors contend the Bank's deficiency claim is barred as a matter of law.23 The Bank asserts the Debtors' Guaranty is valid and should be enforced under Colorado law, but, in the alternative, even if California law applies, the Debtors have waived the protection of such laws.24
The Court finds...
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...choice of law provisions unless a party can prove one of the two exceptions in Restatement Section 187(2). In re Brock, 494 B.R. 534, 541 (Bankr. D. Colo. 2013). The Debtor makes no serious argument for the Restatement Section 187(2)(a) exception to the Parties' chosen law. Clearly, Wiscons......
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