In re Palmdale Hills Prop. Llc
| Citation | 2011 Daily Journal D.A.R. 11692,55 Bankr.Ct.Dec. 57,654 F.3d 868,11 Cal. Daily Op. Serv. 9775,66 Collier Bankr.Cas.2d 273 |
| Decision Date | 03 August 2011 |
| Docket Number | No. 10–60004.,10–60004. |
| Parties | In re PALMDALE HILLS PROPERTY, LLC, Debtor.Palmdale Hills Property, LLC; SCC/Palmdale, LLC; SunCal Summit Valley, LLC; SunCal Emerald Meadows, LLC; SunCal Bickford Ranch, LLC; Acton Estates, LLC; SunCal Communities I, LLC, Appellants,v.Lehman Commercial Paper, Inc., Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
OPINION TEXT STARTS HERE
Paul J. Couchot (argued) and Sean O'Keefe, Winthrop Couchot, P.C., Newport Beach, CA, for appellants Palmdale Hills Property, LLC, et al.Christopher R.J. Pace, Weil Gotshal & Manges, LLP, Miami, FL (argued), Dean A. Ziehl, Pachulski Stang Ziehl & Jones LLP, Los Angeles, CA, for appellee Lehman Commercial Paper, Inc.Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Hollowell, Pappas, and Markell, Bankruptcy Judges, Presiding. BAP No. 09–1101–HPaMk.Before: BETTY B. FLETCHER and N. RANDY SMITH, Circuit Judges, and RUDI M. BREWSTER, Senior District Judge.*
An automatic stay imposed by 11 U.S.C. § 362(a) bars actions that would diminish the estate of a debtor in bankruptcy (the first debtor). Therefore, if another (also a debtor in bankruptcy) wants to equitably subordinate the creditor claims of the first debtor, it must seek relief from stay from the first debtor's home bankruptcy court. We affirm the judgment of the Bankruptcy Appellate Panel (BAP).
Over several years, various Lehman entities 1 entered into credit agreements with the Palmdale Hills, LLC 2 entities. These agreements were secured by the properties Palmdale was developing, Palmdale's personal property, and/or equity interests in the Palmdale entities. By 2008, Palmdale owed Lehman approximately $649 million plus interest. Although three loans, the SunCal I Loan, the Ritter Ranch Loan, and the Mezzanine Loan, are the subject of this appeal, only the Ritter Ranch Loan is significant. The Ritter Ranch Loan originated from a credit agreement dated February 8, 2007 and is secured by liens on projects owned by Palmdale Hills Property, LLC and an equity interest in Palmdale Hills, LLC. As discussed below, this loan has two components: a Term Loan, which was sold to Fenway Capital, and a Revolver Loan, which was not sold.
Palmdale filed for chapter 11 bankruptcy in November 2008 in the Central District of California. On January 6, 2009, Palmdale began an adversary proceeding against ALI, and later Lehman, to equitably subordinate ALI's security interests, which were based on Lehman's loans to Palmdale. On January 23, 2009, Lehman filed eight motions for relief from Palmdale's stay to foreclose on the collateral securing the loans that were in default. Lehman argued that relief was warranted, because the property was declining in value. It also argued that it was entitled to relief from stay, because any reorganization plan was unfeasible. Any reorganization plan would require equitably subordinating Lehman's security interests, which was prohibited by the automatic stay in Lehman's own bankruptcy proceeding in the Southern District of New York.
On March 10, 2009, the California bankruptcy court denied each of the motions, holding that equitable subordination, like other defenses such as claim objection, would not violate Lehman's stay. Lehman appealed the bankruptcy court's rulings regarding the scope and application of Lehman's automatic stay to the Bankruptcy Appellate Panel for the Ninth Circuit.
While Lehman's appeal was pending before the BAP, Palmdale discovered that Lehman had transferred some of its loans to Fenway Capital under a Master Repurchase Agreement (MRA). Palmdale moved to strike Lehman's proofs of claim on the basis that, as neither the owner of the loans nor an agent of the creditor, Lehman had no standing to file the proofs. The California bankruptcy court considered the MRA and determined that Lehman had sold the loans to Fenway Capital. The “sold loans,” for which the proofs of claim were filed, included the SunCal I Loan and Ritter Ranch Loan.3 The court rejected Lehman's argument that the transfer was only as security. Lehman filed a motion asking the court to clarify that the sold loans did not include the revolver components of those loans. That motion is still undecided by the California bankruptcy court.
On October 20, 2009, Palmdale moved to dismiss Lehman's appeal to the BAP, claiming that (1) the bankruptcy court's finding that Lehman had sold the loans to Fenway Capital deprived Lehman of standing to appeal, because Lehman's stay would only protect Lehman's property; (2) because the stay does not protect loans Lehman no longer owns, there is no injury to redress; and (3) the appeal is moot.
The BAP found the appeal was not moot, because effective relief could still be granted. Lehman Commercial Paper, Inc. v. Palmdale Hills Prop., LLC (In re Palmdale Hills Prop., LLC), 423 B.R. 655, 662 (9th Cir. BAP 2009). It was “not clear that all the loans [Lehman] made to [Palmdale] were the subject of the October Order.” Id. The BAP also held that Lehman had standing under the person aggrieved test, because it had “an interest in at least one of the loans,” and may have an interest “under a contractual repurchase obligation.” Id.
The BAP finally held that, because equitable subordination seeks to minimize an otherwise allowable claim, it is an affirmative action to take control of Lehman's property and thus prohibited by Lehman's stay. Id. at 665 (citing In re Enron Corp., 2003 Bankr.Lexis 2261 (Bankr.S.D.N.Y. Jan. 13, 2003)). Thus, before Palmdale could subordinate Lehman's claims and transfer Lehman's liens to the estate, it had to apply for relief from stay from Lehman's home bankruptcy court in the Southern District of New York. Id. at 668. Palmdale timely appealed to the Ninth Circuit on January 8, 2010.
After the BAP decision, Palmdale filed a motion in the New York bankruptcy court for a determination that the stay did not apply, or in the alternative, for relief from stay. On May 17, 2010, the bankruptcy court (Judge Peck) handling Lehman's bankruptcy denied Palmdale's Motion. The court stated that “[t]he stay applies and the motion is denied,” but seemed to defer its decision because of the Ninth Circuit appeal. Transcript of Hearing at 75, In the Matter of Lehman Brothers Holdings Inc., et al., Nos. 08–13555(JMP); 08–01420(JMP), (hereafter Transcript of Hearing).
Palmdale appealed the denial of the relief from stay motions to the district court in New York. The district court construed the bankruptcy court's decision as not coming “to any independent conclusions as to the scope of the stay.” In re Lehman Brothers Holdings, Inc., 435 B.R. 122, 137 (S.D.N.Y.2010). It noted that the written order did not mention the scope of the stay and that such a decision would conflict with the court's intent to defer to the Ninth Circuit. Id. The Second Circuit affirmed this interpretation. Suncal Cmtys. I LLC v. Lehman Commercial Paper, Inc., 402 Fed.Appx. 634, 636 (2d Cir.2010).
Standing is an issue of law which we review de novo. Mayfield v. United States, 599 F.3d 964, 970 (9th Cir.2010). Factual determinations underlying the standing decision are reviewed for clear error. San Diego Cnty. Gun Rights Comm. v. Reno, 98 F.3d 1121, 1124 (9th Cir.1996). We may affirm the BAP “on any ground finding support in the record.” In re Siriani, 967 F.2d 302, 304 (9th Cir.1992). We review the BAP decision de novo and may only reverse the factual findings of the bankruptcy court if clearly erroneous. Id. at 303–04. Whether Lehman satisfies the “person aggrieved” test is a question of fact that is reviewed for clear error. Duckor Spradling & Metzger v. Baum Trust (In re P.R.T.C., Inc.), 177 F.3d 774, 777 (9th Cir.1999).
Article III standing is a necessary component of subject matter jurisdiction. To have Article III standing, Lehman must show:
(1) it has suffered an “injury in fact” that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; 4 and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.
In order to suffer an injury from the bankruptcy court's decision allowing equitable subordination, Lehman must have some interest in a claim that would be subordinated. Lehman argues that it had standing to appeal because it owned at least two of the loans related to the appeal—the Ritter Ranch Revolver Loan and the Mezzanine Loan.
Lehman cannot rely on its interest in the Mezzanine Loan (which undisputedly was not transferred to Fenway Capital by the MRA) to show that it suffered an injury in fact. Lehman represented to the court that the collateral securing the Mezzanine Loan has no value. A claim is only secured up to the value of the creditor's interest in the property, the remainder of the claim is unsecured. 11 U.S.C. § 506(a)(1). Because the value of Lehman's interest in the collateral is $0, the lien would also have no value. Therefore, the claim is effectively unsecured. As such, subordinating the claim could not affect the value of Lehman's estate.
However, Lehman's interest in the Ritter Ranch Revolver Loan, if retained, would establish Article III st...
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