Tuma, In re
| Decision Date | 02 October 1990 |
| Docket Number | No. 89-35089,89-35089 |
| Citation | 916 F.2d 488 |
| Parties | Bankr. L. Rep. P 73,642 In re Charles R. TUMA and Jolene L. Tuma, Debtors. Charles R. TUMA and Jolene L. Tuma, Appellants, v. FIRSTMARK LEASING CORPORATION, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Brent T. Robinson, Ling, Nielsen & Robinson, Rupert, Idaho, for appellants.
Tom N. Ambrose, Lindsey, Hart, Neil & Weigler, Boise, Idaho, for appellee.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel.
Before WALLACE, FERGUSON and BRUNETTI, Circuit Judges.
The memorandum disposition filed June 28, 1990, is redesignated as an authored opinion by Judge Ferguson.
Charles and Jolene Tuma appeal a decision of the bankruptcy court, affirmed by the Bankruptcy Appellate Panel, which allowed their major creditor to elect to have its entire claim treated as secured under 11 U.S.C. 1111(b). We affirm.
Charles and Jolene Tuma ["the Tumas"] are the major stockholders of Sawtooth Radio corporation ["Sawtooth"], a closely held corporation. Sawtooth owed approximately $1,450,000 to Firstmark Leasing Corporation ["Firstmark"], for which Firstmark held a security interest in all of Sawtooth's assets. In addition, as part of the security for this money, the Tumas had personally guaranteed the debt and pledged their Sawtooth stock as collateral. In February 1986, Sawtooth filed a Chapter 11 bankruptcy; the Tumas filed under Chapter 11, separately, on the same day.
The Sawtooth bankruptcy plan was confirmed over Firstmark's objections in October, 1986, and affirmed on appeal, first by the Bankruptcy Appellate Panel [BAP], and then in July 1989 in an unpublished disposition of this court. Under the Sawtooth plan, Firstmark received $1.2 million on their secured claim, and an additional $250,000 on their unsecured claim, to be paid over 20 years. Certain other creditors received minor sums. The Tumas, as creditors of Sawtooth, retained their stock in Sawtooth in consideration for money they had loaned the corporation and for their personal payment of the corporation's debts.
Sawtooth still held the Tumas' personal guarantee of the debt and the pledge of their stock as collateral. In the Tumas' bankruptcy proceeding, Firstmark moved to elect treatment of this entire claim as secured under Sec. 1111(b) of the Code. The Tumas objected on the grounds that the stock was of "inconsequential value" and therefore ineligible for this election under Sec. 1111(b)(1)(B)(i). The bankruptcy judge issued a brief order, noting that the stock provided a controlling interest in Sawtooth, which appeared on its way to a successful reorganization, and stating that "[t]his fact alone militates against a finding of inconsequential value."
The Tumas appealed to the BAP, arguing that the stock was of inconsequential value and that Firstmark's interest in the stock had been extinguished through the Sawtooth bankruptcy. The BAP held that the Sawtooth bankruptcy had not extinguished Firstmark's lien on the stock. In the absence of evidence showing that the judge had been clearly erroneous in determining the stock was of more than inconsequential value, the BAP affirmed the order permitting Firstmark's Sec. 1111(b) election.
The bankruptcy court's findings of fact are reviewed under the "clearly erroneous" standard. In re Comer, 723 F.2d 737, 739 (9th Cir.1984). Its conclusions of law are reviewed de novo. Id.
The Tumas argue that Firstmark's interest in the stock was extinguished by the confirmation of the Sawtooth bankruptcy. The bankruptcy judge did not deal with this argument explicitly, though the transcript shows that the debtors raised it on oral argument. However, his decision to allow the election revealed that he found Firstmark's interest had not been extinguished. The BAP found explicitly that the Tumas had retained their interest in the stock subject to Firstmark's lien.
The Tumas make two arguments for the proposition that Firstmark's lien had been extinguished, both of which confuse their role in the Sawtooth bankruptcy with their role in their own bankruptcy. First, the Tumas cite cases holding that, upon confirmation, the Chapter 11 estate ceases to exist; they argue that therefore the stock they received after the Sawtooth bankruptcy was stock in a new entity. However, the cited cases are concerned with the impact of confirmation of a plan on the relationship between the creditors and debtors. These cases do not support the notion that a different corporate entity replaced the first. For example, in In re Air Center, 48 B.R. 693 (Bankr.W.D.Okla.1985), the confirmed plan called for a third party to contribute money to pay the corporation's debts. When the third party failed to make the payments, the court held that the recourse of those who did not receive their money lay against the reorganized estate and the third party who had failed to pay; they could not pursue the secured creditor who had received most under the plan.
In the Sawtooth bankruptcy, the Tumas were more like the "third party" than the debtors in Air Center. As the BAP held, the Sawtooth plan provided the Tumas could "retain their stock" with no indication that the stock had any different attributes than it did before confirmation of the plan. They retained the stock in consideration for their payment of the corporation's debts; they are now, in their own bankruptcy, attempting to deal with the creditor who moves against them.
Second, the Tumas cite cases stating that upon confirmation of a plan, the property of the estate revests in the bankruptcy debtor subject only to liens specified in the plan. Most of these cases are not on point. Their best authority is a bankruptcy case which stated that property revested in the debtor when a creditor had not maintained its perfected security interest. In re Nardulli & Sons Co., Inc., 66 B.R. 871, 881 (Bankr.W.D.Pa.1986). The district court later held that the creditor had in fact maintained its security interest; the court of appeals affirmed without...
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