Appeal from the United States Bankruptcy Court for the Eastern District of California Honorable Robert S. Bardwil, Bankruptcy Judge, Presiding. Bk. No. 10-27215
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on February 17, 2011 at Sacramento, California
Before: HOLLOWELL, KIRSCHER and DUNN, Bankruptcy Judges.
Ripon Self Storage, LLC (Ripon) appeals two orders entered by the bankruptcy court: (1) granting a motion for relief from stay filed by Exchange Bank (Bank); and (2) denying Ripon's motion to enforce the automatic stay against property of Ripon's principal and for damages as a result of the Bank's foreclosure on that property. We AFFIRM.
In July 2005, Ripon obtained a construction loan from the Bank to develop 3.1 acres of land in Ripon, California (the Business Property) into a 352-unit storage facility. Ripon executed a promissory note in favor of the Bank in the principal amount of $3,470,000 (the Note). The Note is secured by a deed of trust on the Business Property and an assignment of rents derived from that property (Rent Assignment).
Ripon failed to pay the balance due when the Note matured on August 1, 2008. On June 18, 2009, the Bank and Ripon entered into a modification of the Note and a forebearance agreement (the Modification Agreement). The Modification Agreement reduced the Note's principal to $2,175,000 and extended its maturity date to June 30, 2010. Additionally, the Modification Agreement provided for the execution by Ripon of a second note in the amount of $1,142,719 (the Second Note). The Second Note is secured by deeds of trust on real property personally owned by Ripon's principal, Ted Madzey (Madzey) (the Madzey Property).
Ripon breached the Modification Agreement by not forwarding rents to the Bank as required by the Rent Assignment. As a result of Ripon's default, the Bank noticed a trustee's sale on the Business Property for March 2010. On March 23, 2010, Ripon filed a chapter 11*fn2 bankruptcy petition.
On its bankruptcy Schedule A, Ripon valued the Business Property at $2,175,000 with secured claims against it in the amount of $2,294,425.*fn3
On April 1, 2010, Ripon sought the use of cash collateral from the Bank.*fn4 It predicated its request on its contention that the Bank would be adequately protected by an equity cushion in the Business Property, alleging the Business Property had a value of $2,900,000, and later amended its Schedule A to reflect the higher valuation. The Bank opposed Ripon's use of cash collateral, in part, because according to the Bank's appraisal and the Schedule A on file, there was no equity in the Business Property. The Bank sought adequate protection payments. On June 6, 2010, the bankruptcy court granted ...