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In Re: Flamingo 55, Inc.; Vegas v. Timothy S. Cory

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT


July 25, 2011

IN RE: FLAMINGO 55, INC.; VEGAS TOWNHOMES PARTNERS, L.P., DEBTORS,
LRL GREGORY GRANTHAM; JOHN SABA, APPELLANTS,
v.
TIMOTHY S. CORY, CHAPTER 7 TRUSTEE; EMERALD GATE CONSTRUCTION, INC., APPELLEES.

Appeal from the United States District Court for the District of Nevada Robert Clive Jones, Chief District Judge, Presiding D.C. No. 2:07-cv-01640-RCJ-

The opinion of the court was delivered by: Fernandez, Circuit Judge:

FOR PUBLICATION

OPINION

Argued and Submitted June 14, 2011-San Francisco, California

Before: Diarmuid F. O'Scannlain, Ferdinand F. Fernandez, and Jay S. Bybee, Circuit Judges.

Opinion by Judge Fernandez

OPINION

Gregory Grantham and John Saba appeal the district court's order affirming the bankruptcy court's decision*fn1 that they were not entitled to subrogation pursuant to the provisions of

11 U.S.C. § 509.*fn2 We affirm.

The bankruptcy court issued a lengthy and detailed opinion dealing with the facts and issues before it and we perceive no reason to iterate the details of its discussion.*fn3 Therefore, we adopt the bankruptcy court's statements of facts in part II of its decision. In re Flamingo 55, 378 B.R. 893, 900-04 (Bankr. D. Nev. 2007).

With one clarification and one exception, we also adopt the bankruptcy court's discussion and determination denying Grantham and Saba's assertion that they were entitled to subrogation pursuant to 11 U.S.C. § 509. See Flamingo 55, 378 B.R. at 919-21 (part V).

(1) Clarification:

[1] The bankruptcy court determined that Grantham and Saba's predecessor in interest, Broadway-Acacia, LLC, and the debtor Flamingo 55, Inc., were partners or coventurers in a venture to develop certain property, and that the loan in question was to them for the purpose of pursuing that venture. As a result, the bankruptcy court determined that Grantham and Saba do not come within the provisions of 11 U.S.C. § 509(a), which provides for subrogation,*fn4 and do come within the provisions of 11 U.S.C. § 509(b)(2), which precludes subrogation.*fn5 We clarify that it is Broadway-Acacia's position as a partner or coventurer in the development enterprise that distinguished it as a joint borrower rather than a mere surety, guarantor or accommodation comaker.*fn6 That drove and supported the bankruptcy court's subrogation determinations. Neither our nor its decision should be read as reaching further than the situation presented by the relationship between the borrowers in this case.

(2) Exception:

[2] Although it does not affect the result here, we do not agree with the bankruptcy court's determination that simply because the loan from the creditor, Datacom Investment Co., to Flamingo 55 and Broadway-Acacia was discharged by means of foreclosure on property, which secured that loan and was then owned by Grantham and Saba, it was not actually paid by Grantham and Saba within the meaning of 11 U.S.C. § 509(a). See Flamingo 55, 378 B.R. at 920 (part V.B.2). That is an overly restrictive reading of the words "pay" and "payment" in § 509(a). As other courts have recognized, payment is not to be taken in some technical sense, which refers to cash payments alone. See Aetna Cas. & Sur. Co. v. Chateau-gay Corp. (In re Chateaugay Corp.), 89 F.3d 942, 948 (2d Cir. 1996); Feldhahn v. Feldhahn, 929 F.2d 1351, 1354 (8th Cir. 1991). And here, while it is no doubt true that the actual cash came from foreclosure of a deed of trust on Grantham and Saba's property, the fact is that what was obtained thereby was the value of the property itself. That is, Grantham and Saba's valuable property was sold at foreclosure, and part of the cash proceeds was paid to Datacom to satisfy the debt. For this purpose, it really is no different from a sale by Grantham and Saba themselves with the proceeds used to pay the debt, and little different from a direct taking of that property by Datacom in payment of the debt. Thus, we reject that portion of the bankruptcy court's opinion.

Therefore, we agree with the district court's ultimate deter-mination and affirm the bankruptcy court's decision with the clarification and exception noted above.*fn7

AFFIRMED.


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