Matter of Plaza Family Partnership

• Decision Date: 13 January 1989
• Docket Number: No. CV-F-88-396 REC.,CV-F-88-396 REC.
• Citation: 95 BR 166
• Parties: In the Matter of PLAZA FAMILY PARTNERSHIP, a California General Partnership, The TRAVELERS INSURANCE COMPANY, Appellant, v. PLAZA FAMILY PARTNERSHIP, Appellee.
• Court: U.S. District Court — Eastern District of California

95 B.R. 166 (1989)

In the Matter of PLAZA FAMILY PARTNERSHIP, a California General Partnership,

The TRAVELERS INSURANCE COMPANY, Appellant, v. PLAZA FAMILY PARTNERSHIP, Appellee.

No. CV-F-88-396 REC.

United States District Court, E.D. California.

January 13, 1989.

David Ray Jenkins, Fullerton, Lang, Richert & Patch, Fresno, Cal., for appellant Travelers Ins. Co.

Whitney Rimel, Diepenbrock, Wulff, Plant & Hannegan, Sacramento, Cal., for appellee Plaza Family Partnership.

ORDER AND DECISION RE APPEAL OF BANKRUPTCY COURT'S ORDER AUTHORIZING USE OF CASH COLLATERAL

COYLE, District Judge.

On December 19, 1988 the court heard an appeal filed by Travelers Insurance Company, a secured creditor, contesting an order enter by Judge Hedrick the U.S. Bankruptcy Court, Eastern District of California, Modesto Division, which authorized Plaza Family Partnership, a partnership in chapter 11 proceedings, to use cash collateral of the bankrupt estate for the purpose of paying the tax obligations of its individual partners. Upon due consideration of the arguments of the parties and the record, the court reverses the bankruptcy court's order for the reasons herein and remands for further proceedings consistent with this decision.

The debtor-partnership filed for Chapter 11 protection on December 15, 1986. The primary asset of the partnership consists of 1,056 acres of farmland. The property is subject to a claimed security interest in favor of the Appellant, Travelers Insurance Company. Travelers claims it has first priority deed of trust in the rents and profits of the property and has filed proofs of claim with the bankruptcy court in the amount of $1,133,905.

Plaza Family Partnership maintained the estate as a debtor-in-possession during 1987 pursuant to 11 U.S.C. sections 1107-1108. During the year the partnership had approximately $395,000 of income as a result of leasing the property and the sale of beans on the property.

By an ex parte application filed on April 7, 1988 the debtor-partnership obtained an order shortening time to allow its motion to use cash collateral to be heard on April 14, 1988. The partnership stated the reason for the order shortening time was that an emergency existed, the deadline for filing individual tax returns. The individual family members had a tax liability of approximately $96,000 due on April 15, 1988.

The debtor-partnership in its motion to use cash collateral submitted the declaration of Dave Dunshee, an appraiser, and his report that the property was valued at $2,320,000 in May 1987. Also submitted was the declaration of Maria Stokman, the accountant that prepared the taxes of individual partners, which stated that the combined Federal and State tax liability on account of income resulting from leases of the estate property and from bean sales for 1987 is approximately $96,000. Traveler's does not dispute the fact that the individual partners suffered tax consequences as a result of leasing of estate property or the amount of tax liability incurred. The third declaration in support of the motion was submitted by Tony Plaza on behalf of himself and all the partners. The declaration stated that the partners were unable to pay the income tax.

Bankruptcy court Judge Hedrick granted the partnership's motion for authority to use cash collateral for the purpose of paying the income taxes of the individual partners. The court ruled from the bench that the motion was granted. The court issued a written order on April 27, 1988 that stated the motion was granted but did not make any findings of fact or conclusions of law. Travelers did not request a stay of the order pending appeal and the debtor-partnership did in fact use the requested cash collateral for this purpose.

The following issues are presented on appeal:

1. Whether the appeal is moot because the appellant failed to obtain a stay of the order pending appeal;

2. Whether the bankruptcy court properly heard the motion to use cash collateral on shortened time;

3. Whether the bankruptcy court properly authorized the use of cash collateral for the purpose of paying the tax liability of its individual partners.

The standard of review applied to a bankruptcy court's findings of fact and law is set forth by Rule of Bankruptcy Procedure No. 8013. That rule states findings of fact, whether based on oral or documentary evidence, will not be set aside unless clearly erroneous and an appellate court should give due regard to the opportunity of the bankruptcy court to judge the credibility of witnesses. Conclusions of law, however, are subject to de novo review. In re Mellor, 734 F.2d 1396, 1399 (9th Cir.1984).

Travelers contends that because no findings of fact were made by the bankruptcy court and it did not articulate the facts on which the decision was based, issues of fact are reviewable de novo and no deference need be given to the trial court on these issues.

Federal Rule of Civil Procedure 52(a) provides that findings of fact are unnecessary on decisions of motions under Rule 12 or 56 or any other motion except as provided in Rule 41(d). Bankruptcy Procedure Rule 7052 expressly states that Rule 52 applies in adversarial proceedings before bankruptcy judges. One court has stated a bankruptcy court is not required to set forth findings of fact in an order on a motion for authorization to use cash collateral. In re Indus. Valley Refrig. & Air Cond. Supplies, 77 B.R. 15, 18 (Bkrtcy.E. D.Pa.1987).

The policies and reasons for not requiring bankruptcy courts to make findings of fact on motions was stated in In re Campfire Shop, Inc., 71 B.R. 521 (Bktrcy.E.D. Pa.1987):

It is totally within the discretion of bankruptcy judges as to whether they wish to make any specific findings of fact and/or conclusions of law, or wish to issue any directive except an order unaccompanied by any explanation whatsoever, in deciding any Motion except a Motion for involuntary dismissal.

Given the vast quantity of motions, a good number of which are to some degree contested, which come before bankruptcy court for disposition daily, invocation of the caveat of the last sentence of Rule 52(a) serves what we believe to be the salutary purpose of preserving the sanity of bankruptcy court judges. We therefore underscore that nothing in the federal rules requires us to make any specific findings of fact and/or conclusions on any motion before us except those pursuant to F.R.Civ.P. 41(b). We further note that this rule clearly applied to the various petitions and applications which come before us for disposition, a large quantity of which are fee applications. We assume that the district court, being aware of the language of Rule 52(a) and the enormous quantity of matters before us for disposition will remand matters appealed to that court to us make detailed findings of fact only where it is necessary to assist the district court in reviewing our disposition.

Id. 71 B.R. at 524-25. (Citations omitted.)

However, the court notes that in In re Scrap Disposal, Inc., 15 B.R. 296 (9th Cir. B.A.P 1981) the appellate court held the statement in Bankruptcy Rule 752 and Fed.R.Civ.P. 52(a) that findings of fact and conclusions of law are unnecessary on decisions of motions is limited to those motions decided on questions of law. Id. at 297. The court remanded the case for specific findings because there were alternative grounds upon which the court could have granted the motion.

Even if the trial court erred in not making specific findings of fact or articulate the basis for its conclusions that the creditors were adequately protected, reversal of the order or remanding the case for specific findings is not always required. The purpose of findings of fact by a trial court is to give an appellate court a clear understanding of the basis of the trial court's decision, and to enable it to determine the ground on which the trial court reached its decision. Alpha Distrib. Co. of Cal. Inc. v. Jack Daniel Distillery, 454 F.2d 442, 453 (9th Cir.1972). Failure to comply fully with Rule 52(a) does not require an appellate court to remand where a full understanding of the issues can be reached without the aid of findings. Id. at 453. See also In re Brown, 21 B.R. 701 (1st Cir.B.A. P. 1982). ("Thus, even assuming that the court did not fully comply with Bankruptcy Rule 752(a) it is clear that the trial court concluded that estate property was, in fact, transferred." Id. at 703).

In the present case the record clearly indicates the basis of the trial court's ruling. There was testimony and affidavits submitted to the court concerning the value of the land which was uncontested by the creditors. The court in authorizing the use of cash collateral made an implicit determination that the equity cushion in the estate property provided adequate security to secured creditors. The bankruptcy court's order may not have complied fully with the requirements of Rule 52(a), but the court does not have to remand for findings of fact because the grounds for the trial court's actions are clear to this court. The bankruptcy court's implicit determination that the creditors were adequately protected will be reviewed on a clearly erroneous standard.

1. Mootness of the Order.

The debtor-partnership contends that this appeal is moot because at no time did Travelers seek a stay of the bankruptcy court's order authorizing use of cash collateral. It cites to an Eighth Circuit case, Dahlquist v. First National Bank of Sioux City, Iowa, 737 F.2d 733 (1984), where the Appellate court dismissed an appeal of a bankruptcy court's order authorizing the use of cash collateral because the funds were already spent by the debtor. The partnership also relies Bankwest v. Tott, 49 B.R. 633, 637 (D.C.S.D.1985) where the court similarly held that the issue of cash collateral is moot to the extent the amounts were already expended.

The court finds the present appeal is not moot because the debtor-partnership...