In re Weinstein
| Decision Date | 10 November 1998 |
| Docket Number | Bankruptcy No. LA94-38144-SB.,BAP No. CC-96-2023-RuJO |
| Citation | 227 BR 284 |
| Parties | In re Norton Charles WEINSTEIN and Joyce Weinstein, Debtors. FIRST FEDERAL BANK OF CALIFORNIA, Appellant, v. Norton Charles WEINSTEIN and Joyce Weinstein, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Mark Robbins, Epport & Richman, Los Angeles, CA, for First Federal Bank of California.
Raymond H. Aver, Fainsbert, Mase & Snyder, Los Angeles, CA, for Norton and Joyce Weinstein.
Before: D. RUSSELL1, JONES and OLLASON, Bankruptcy Judges.
Appellant First Federal Bank of California appeals an order by the bankruptcy court confirming appellees Norton and Joyce Weinstein's First Amended Plan of Reorganization. We AFFIRM.
In March 1991, appellant First Federal Bank of California (the "Bank") loaned appellees Norton and Joyce Weinstein ("Debtors") $1,000,000 with interest at a rate of 10.463 percent per annum. The loan was secured by a first deed of trust on Debtors' residence, an ocean front condominium located in Santa Monica, California (the "residential property"). In February 1994, Debtors defaulted on their monthly loan payments. On July 29, 1994, Debtors filed a petition for relief under Chapter 11 of the Bankruptcy Code.2
The Bank later filed a motion for relief from the automatic stay. Following a hearing on the motion, the bankruptcy court issued an order requiring Debtors to make "adequate protection" payments of $7,000 per month to the Bank commencing on April 1, 1995. These payments continued until the Debtors' plan of reorganization was confirmed in October 1996. Eventually, $98,000 in total payments were made.
The Bank's total claim for its loan is $1,012,700.71. On May 22, 1996, the bankruptcy court held an evidentiary hearing to determine the fair market value of the residential property. It concluded that the value of the property as of July 1994 was $850,000. Thereafter, the Bank made an election under § 1111(b)(2) of the Code to have its entire claim treated as fully secured.
The Debtors proposed their First Amended Plan of Reorganization (the "Plan") to creditors in July 1995 and the Bank filed various objections to the Plan. At the confirmation hearing, the bankruptcy court found that there had been no change in the value of the residential property between the date the petition was filed and the date the Plan was to be confirmed. Its value remained $850,000. The court also held that Debtors were entitled to credit the $98,000 in postpetition, preconfirmation payments to reduce the Bank's allowed secured claim of $850,000 to $752,000. The court further held that the residential property, also used as Debtors' business office, was necessary for the Debtors' effective reorganization and that the Plan complied with the requirements of 11 U.S.C. §§ 1129(a) and (b). The Plan was confirmed on October 28, 1996 over the Bank's objections.
The order confirming the Plan addressed the treatment of the Bank's claim. Debtors are required to pay the Bank $752,000 with interest of 9.4 percent per annum in monthly installments of $6,268.43 commencing in July 1996 and continuing for 120 months. These payments, however, are based upon a 30 year amortization. In June of 2006, any unpaid principal and interest owing on the $752,000 adjusted secured claim is to be paid in full. Additionally, the confirmation order requires that if the fair market value of the residential property exceeds $850,000 at the end of the 120 months or at the time the property is sold, whichever occurs first, the Bank must receive any increase in the property's value up to $162,700.71.
The Bank appeals the order confirming the Plan.
1. Whether the bankruptcy court properly applied the Bank's election under 11 U.S.C. § 1111(b)(2).
2. Whether the bankruptcy court erred in applying Debtors' $98,000 in postpetition, preconfirmation payments to reduce the secured, rather than unsecured, portion of the Bank's claim.
The bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. In re Candland, 90 F.3d 1466, 1469 (9th Cir.1996) (citation omitted); Fed.R.Bankr.P. 8013.
Whether a reorganization plan properly applies an undersecured creditor's § 1111(b)(2) election involves interpretation and application of the Bankruptcy Code and is thus a question of law reviewed de novo. See United States Trustee v. Garvey, Schubert & Barber (In re Century Cleaning Servs., Inc.), 215 B.R. 18, 20 (9th Cir. BAP 1997); Wade v. Bradford, 39 F.3d 1126, 1129 (10th Cir.1994).
Whether postpetition, preconfirmation payments made to an undersecured creditor whose collateral did not depreciate should be credited towards reducing the secured or unsecured portion of the creditor's claim is also a question of law which we review de novo. See In re Spacek, 112 B.R. 162, 165 (Bankr.W.D.Tex.1990).
As a preliminary matter, we dispose of several ancillary arguments raised by the parties.
First, Debtors claim that the Bank's appeal is moot. They argue that the Plan is substantially consummated so that it could not be set aside without jeopardizing the entire reorganization.
Mootness is a judicial doctrine with the general rule that the occurrence of events which prevents an appellate court from granting effective relief renders an appeal moot. Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421, 1424 (9th Cir.1985). An appeal is dismissed as moot if a stay of an order confirming a plan is not obtained and the plan of reorganization is substantially consummated3 so that effective relief is no longer available. Baker & Drake, Inc. v. Public Serv. Comm'n Nev. (In re Baker & Drake, Inc.), 35 F.3d 1348, 1351 (9th Cir. 1994) (citations omitted); Connecticut General Life Ins. Co. v. Hotel Assocs. of Tucson (In re Hotel Assocs. of Tucson), 165 B.R. 470, 474 (9th Cir. BAP 1994). Here, the Bank did not obtain a stay of the Plan pending this appeal.
Whether a reorganization plan is substantially consummated turns on the facts of each case. Hotel Assocs. of Tucson, 165 B.R. at 474. Once a reorganization plan is substantially consummated, there is often a comprehensive change in circumstances so as to render it impractical for the appellate court to review the merits of the plan. See Algeran, 759 F.2d at 1423. However, the fact that a plan is substantially consummated and that the appellant failed to obtain a stay pending appeal does not, by itself, render an appeal moot. See Baker & Drake, 35 F.3d at 1351. The appellate court should still consider whether it can grant effective relief. Id. If the court can fashion relief by simply ordering additional disbursements of money by one of the parties on appeal, the appeal is not moot. See Id.; Spirtos v. Moreno (In re Spirtos), 992 F.2d 1004, 1007 (9th Cir.1993); Salomon v. Logan (In re Int'l Envtl. Dynamics, Inc.), 718 F.2d 322, 326 (9th Cir. 1983).
Here, pursuant to the Plan, Debtors have returned various pieces of real property to several secured creditors discharging these secured claims in full, and have made approximately $40,000 in cash payments to the administrative and unsecured claimants. Debtors argue that the property transfers and cash payments can not be undone without adversely affecting both them and the various creditors. Thus, they claim, it would be impossible to unscramble this case if the order confirming the Plan were reversed on appeal. We disagree.
A practical and equitable remedy can still be fashioned in this case. The Bank's primary claims on appeal are that the bankruptcy court erred in crediting the $98,000 in postpetition, preconfirmation payments to reduce the secured, rather than unsecured, portion of its claim and that it misapplied the Bank's § 1111(b)(2) election. The Bank, therefore, merely requests that Debtors be required to pay it more money. Since the remedy requested would simply require one of the parties on appeal to pay the other party additional money, the appeal is not moot. If the Bank prevails on its claims, we would not require the other secured creditors to return their collateral nor would the administrative or unsecured claimants have to disgorge the payments they have received.
Debtors, however, counter that if they had to pay more money to the Bank than currently required, it would impair their ability to continue making Plan payments to several other creditors. This argument is unpersuasive because it is based on the false premise that Debtors would have to begin making any additional payments to the Bank immediately. Debtors could be required to pay the Bank beyond the present 120 month Plan term or increase their payments after payments to other creditors have ended.
Second, the Bank makes several equitable arguments claiming that it would subvert the purposes of Chapter 11 to allow the Debtors to reorganize their consumer debt. Specifically, the Bank claims that Debtors abuse the Chapter 11 process by filing a Plan that essentially seeks to strip down the mortgage on their personal residence. Thus, the Bank argues, the Plan is not filed in good faith as required by § 1129(a)(3). We disagree.
In Toibb v. Radloff, 501 U.S. 157, 161, 111 S.Ct. 2197, 2199, 115 L.Ed.2d 145 (1991), the Supreme Court expressly rejected the argument that individual debtors could not file a petition under Chapter 11. The Court found nothing in the language of the Bankruptcy Code which precluded individuals from reorganizing consumer debt under Chapter 11. Id. However, even prior to the Toibb decision, we permitted modification of home mortgages in Chapter 11. See Warner v. Universal Guardian Corp. (In re Warner), 30 B.R. 528 (9th Cir. BAP 1983). In ...
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