In re Domum Locis LLC

• Decision Date: 17 November 2014
• Docket Number: Bankruptcy No. 2:14–bk–23301–RK.,Adversary No. 2:14–ap–01594–RK.
• Citation: 521 B.R. 661
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re DOMUM LOCIS LLC, Debtor.

521 B.R. 661

In re DOMUM LOCIS LLC, Debtor.

Bankruptcy No. 2:14–bk–23301–RK.

Adversary No. 2:14–ap–01594–RK.

United States Bankruptcy Court, C.D. California, Los Angeles Division.

Signed Nov. 17, 2014.

As Amended Dec. 5, 2014.

Howard S. Levine, Tania M. Moyron, Anastasija Snicarenko, Cypress, LLP, Los Angeles, CA, for Plaintiff.

Gabriel Colwell, Emily L. Wallerstein, Squire Patton Boggs (US) LLP, Los Angeles, CA, Kristin E. Richner, Columbus, OH, for Defendant.

MEMORANDUM DECISION ON VARIOUS MOTIONS OF DEBTOR AND CREDITOR LLOYDS TSB BANK PLC

ROBERT KWAN, Bankruptcy Judge.

Pending before the court are various motions by Debtor Domum Locis LLC(“Debtor”) and Creditor Lloyds TSB Bank plc (“Lloyds”) in the main bankruptcy case and in the adversary proceeding brought by Debtor against Lloyds, which were set for hearing on October 22, 2014.The court has found that because the material facts necessary to resolve these motions are not in dispute, there is no need to proceed with the evidentiary hearings for these matters and that further hearings are no longer necessary because the parties have fully briefed these matters and the court has fully heard the oral arguments of the parties at prior hearings and additional argument would not be helpful.Accordingly, the court dispenses with the evidentiary hearings and further oral argument on these matters and takes the matters under submission, and issues this decision resolving these matters.

These motions are: (1) Debtor's Motion for the Entry of an Order: (I) Authorizing Debtor to Utilize Cash Collateral Pursuant to 11 U.S.C. § 363; and (II) Granting Adequate Protection to Pre–Petition Secured Parties Pursuant to 11 U.S.C. §§ 361and363,2:14–bk–23301–RK, ECF 3;(2)Debtor's Motion to Approve Residential Lease Agreements, 2:14–bk–23301–RK, ECF 2;(3) Lloyds's Motion for (A) Relief From the Automatic Stay Under 11 U.S.C. Section 362(Real Property), and (B) Relief from Turnover Under 11 U.S.C. Section 543 by Prepetition Receiver or Other Custodian (“First Motion for Relief from Stay”), 2:14–bk–23301–RK, ECF 11;(4) Lloyds's Motion for Protective Order Limiting the Scope of Discovery, 2:14–bk– 23301–RK, ECF 46; (5) Lloyds's Motion for Relief From The Automatic Stay Under 11 U.S.C. Section 362(Action in Nonbankruptcy Forum)(“Second Motion for Relief from Stay”), 2:14–bk23301–RK, ECF 57; and (6)Lloyds's Motion to Dismiss Adversary Proceedingnumber 2:14–ap–01594–RK, brought by Debtor (“Motion to Dismiss”).

1.Procedural and Factual History

a. The Facts

The relevant facts material to the motions before the court are undisputed and straightforward.At issue are three parcels of real property listed by Debtor on its bankruptcy schedules as assets of its bankruptcy estate: (1) the “Strand Property” located at 1614–1618 The Strand, Hermosa Beach, California 90254; (2) the “North Flores Property,” located at 1308 North Flores Street, West Hollywood, California 90069; and (3) the “Vista Chino Property,” located at 424 West Vista Chino, Palm Springs, California 92262 (the three properties are collectively known as “the Properties”).Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 8;Debtor's Opposition to Lloyds Motion for Relief from Stay, 2:14–bk–23301–RK, ECF 34 at 7:14–18.Debtor claims ownership of the Properties.Id.;Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding, 2:14–ap–01594–RK, ECF 15 at 3:26–4:3.

The Strand Property and the North Flores Property are located in Los Angeles County, and the Vista Chino Property is located in Riverside County.Debtor is a California limited liability company which was formed on June 13, 2012, and is owned 100 percent by Michael Kilroy(“Kilroy”).Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 6;Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding, 2:14–ap–01594–RK, ECF 15 at 3:24–25.Kilroy is the principal of Debtor.Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 10;Debtor's Opposition to Lloyds Motion for Relief from Stay, 2:14–bk–23301–RK, ECF 34 at 8:9–10.

In or around December 2006 to May 2007, Kilroy took out loans from Lloyds, borrowing an aggregate amount of about $9 million, and then as the owner of the Properties, gave trust deeds on the Properties to secure repayment of the loans (the “Loans”).Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 12;Debtor's Opposition to Lloyds Motion for Relief From Stay, 2:14–bk–23301–RK, ECF 34 at 8:26–27.Kilroy stopped making interest payments on the Loans in April 2009.Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 20;Debtor's Opposition to Lloyds Motion for Relief From Stay, 2:14–bk–23301–RK, ECF 34 at 10:26–27.Kilroy contends that Lloyds has charged him significantly more interest than permitted under the loan documents.Id.;Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding, 2:14–ap–01594–RK, ECF 15 at 4:7–6:7.

On November 12, 2011, Lloyds filed complaints for injunctive relief and appointment of a receiver against Michael Kilroy regarding the loans on the Strand and North Flores Properties in the Superior Court of California, County of Los Angeles(“Los Angeles Superior Court”).Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 21;Debtor's Opposition to Lloyds Motion for Relief From Stay, 2:14–bk–23301–RK, ECF 34 at 11:2–9;Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding, 2:14–ap–01594–RK, ECF 15 at 6:9–23.On December 1, 2011, the Los Angeles Superior Court entered an order granting Lloyds's ex parte application for appointment of a rents and profits receiver and related relief, including a temporary restraining order.Id.Since that time, Robert C. Warren III, the receiver, has had possession of the Strand Property and the North Flores Property and has been collecting rent from both properties.Id.By order entered on January 6, 2012, the Los Angeles Superior Court confirmed the appointment of the receiver.Id.

On May 21, 2014, Lloyds filed amended complaints in these actions in the Los Angeles Superior Court to, among other things, add Debtor as a defendant and further add a judicial foreclosure cause of action against Kilroy and Debtor.Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding,2:14–ap–01594–RK, ECF 15 at 6:24–28.The amended complaints in these actions alleged causes of action for appointment of a receiver, accounting and specific performance of the rents and profits clause, injunctive relief, breach of contract and judicial foreclosure.Id.Kilroy filed amended cross-complaints against Lloyds for fraud and deceit, negligent misrepresentation, tortious breach of the implied covenant of good faith and fair dealing, breach of contract, violation of the California unfair competition law, violation of Hong Kong law, Section 108 of the Securities and Futures Ordinance Cap 571, and declaratory and injunctive relief.Id.at 7:1–6.

In or about April 2012, Lloyds filed a complaint for the appointment of a receiver, accounting and specific performance of the rents and profits clause, injunctive relief, and judicial foreclosure and deficiency against Kilroy regarding the loans on the Vista Chino Property in Superior Court of California, County of Riverside(“Riverside Superior Court”).Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 25;Debtor's Opposition to Lloyds Motion for Relief From Stay, 2:14–bk–23301–RK, ECF 34 at 11:10–16;Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding, 2:14–ap–01594–RK, ECF 15 at 7:9–19.On May 1, 2012, the Riverside Superior Court entered an order granting Lloyds's ex parte application for a rents and profits receiver and related relief.Id.Since that time, the receiver, Mr. Warren, has had possession of the Vista Chino Property.Id.The Riverside Superior Court confirmed the appointment of the receiver in or about June 2012.Id.Debtor is not a party to the Riverside Superior Court action.Id.

On July 13, 2012, Kilroy transferred his interests in the Properties to Debtor.Adversary Complaint,2:14–ap–01594–RK, ECF 1 at ¶ 28;Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding, 2:14–ap–01594–RK, ECF 15 at 7:24–8:2.As alleged by Debtor, it is the owner of the Properties, apparently based on these transfers from Kilroy to it.Id.at ¶¶ 8 and 28 and Exhibit C attached thereto (copies of grant deeds transferring Strand and North Flores Properties from Kilroy to Debtor);Debtor's Opposition to Lloyds Motion to Dismiss Adversary Proceeding, 2:14–ap–01594–RK, ECF 15 at 7:23–8:2.

b. Procedural History in This Case

On July 11, 2014, Debtor filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code.Petition, 2:14–bk–23301–RK, ECF 1.On July 25, 2014, Debtor filed its Summary of Schedules and Schedules, listing the Properties as assets of the bankruptcy estate, and valuing the Properties at $14,470,000. Summary of Schedules and Schedules, 2:14–bk–23301–RK, ECF 23at 2.

On July 14, 2014, Debtor filed a Motion for Cash Collateral and Adequate Protection.Motion for the Entry of an Order: (I) Authorizing Debtor to Utilize Cash Collateral Pursuant to 11 U.S.C. § 363; and (II) Granting Adequate Protection to Pre–Petition Secured Parties Pursuant to 11 U.S.C. §§ 361and363,

2:14–bk–23301–RK, ECF 3.On July 14, 2014, Debtor filed a Motion to Approve Residential Lease Agreements.Motion to Approve Residential Lease Agreements, 2:14–bk–23301–RK, ECF 2.Lloyds filed an opposition to both the Motion for Cash Collateral and the Motion to Approve Residential Lease Agreements on July 22, 2014.2:14–bk–23301–RK, ECF 15.

On July 18, 2014, Lloyds filed a Motion for Relief from Stay on grounds that Debtor's Chapter 11 bankruptcy case was filed in bad faith.Motion for (A) Relief from the Automatic Stay under 11 U.S.C. § 362(Real Property) and (B) Relief from Turnover under 11 U.S.C. § 543 by Prepetition Receiver or Other Custodian, 2:14–bk–23301–RK, ECF 11.

On August 18, 2014, Lloyds filed a Motion for Protective...