In Re: YBA NINETEEN, LLC, Debtor.
INDYMAC VENTURE, LLC, Appellee. YBA NINETEEN, LLC, Appellant, Bankruptcy No. 13-00968-LA11.
WILLIAM Q. HAYES, District Judge.
The matter before the Court is the appeal of the "Order on Debtor's Emergency Motion for New Hearing under FRBP Rule 9023; to Alter or Amend the Order of the Court under FRBP Rule 9023; and, in the Alternative, Motion for Reconsideration under FRBP Rule 9024, " issued by the Bankruptcy Court on June 6, 2013 ("June 6, 2013 Order"). (ECF No. 1).
The real property at issue in this appeal is commonly known as 5955 La Jolla Corona Dr., La Jolla, California ("Property"), and is owned by Debtor/Appellant YBA Nineteen, Inc. ("YBA").
On January 31, 2013, YBA filed the chapter 11 bankruptcy petition. At the time the petition was filed, a non-judicial foreclosure sale of the Property was scheduled for February 1, 2013. (ECF No. 2-2 at 14). The foreclosure sale was postponed due to YBA's bankruptcy filing. Id. In its bankruptcy schedules accompanying the petition, YBA scheduled the Property as having a current market value of $1.5 million. (ECF No. 2-3 at 8). YBA stated in the schedules that the "[v]alue stated as is due to construction defects. Value would be adjusted significantly upward if all repairs are made." Id. In the schedules, YBA stated that Appellee IndyMac Venture LLC ("IndyMac") had a secured claim on the Property of $3, 810, 518. Id. at 8, 12.
On April 10, 2013, IndyMac filed a Motion for Relief from Automatic Stay. (ECF No. 2-2 at 5). IndyMac stated that relief should be granted because IndyMac's interest in the Property is not adequately protected; YBA has no equity in the Property; "Debtor's failure to abate water intrusion results in continuing damage to collateral"; and "[b]ad faith filing arising from unauthorized prepetition transfers of property into single purpose entity." Id. at 7.
On April 25, 2013, YBA filed an opposition to IndyMac's Motion for Relief from Automatic Stay. (ECF No. 2-3 at 53). YBA stated that YBA is willing to make adequate protection payments, the Property is necessary for a reorganization, and no bad faith exists.
On May 2, 2013, IndyMac filed a reply in support of the Motion for Relief from Automatic Stay. (ECF No. 2-8 at 13). In its reply brief, IndyMac stated that cause for lifting the automatic stay existed under 11 U.S.C. § 362(d) "because IndyMac lacks adequate protection, there is no prospect of reorganization and this case is a two-party dispute having all the elements of a bad faith filing." Id. at 15. IndyMac contended that it lacked adequate protection because "the Property is continuing to suffer water and moisture intrusion through construction defects in the Property's numerous ocean facing windows." Id. at 16. IndyMac contended that YBA had no prospect of an effective reorganization, stating:
IndyMac has the burden of proving the Debtor lacks equity in the Property. IndyMac has satisfied that burden through the Debtor's admission in its schedules that the Property is worth only $1.5 million. Since IndyMac's claim stands at almost $4 million, the Debtor clearly lacks equity in the Property.... YBA fails to explain precisely how it will remediate the water damage and timely complete construction of the Property to place the Property in position to be sold. In any such sale, IndyMac retains credit bid rights as a matter of law. Since IndyMac is presently undersecured by $2.5 million, Debtor cannot propose a feasible plan. As it is Debtor's burden to prove an effective reorganization is in prospect, Debtor has failed to carry its burden of proof.
Id. at 21, 23 (citations omitted). IndyMac contended that "YBA's case is a bad faith filing" which was filed for no reason other than to delay IndyMac's foreclosure after YBA's principal, Kamran Banayan, lost in state court litigation against IndyMac. Id. at 21. IndyMac contended that all of the "factors demonstrating bad faith" are present. Id. at 19 (citing Matter of Little Creek Dev. Co., 779 F.2d 1068, 1072 (5th Cir. 1986); In re Arnold, 806 F.2d 937, 939 (9th Cir. 1986); In re Can-Alta Props., Ltd., 87 B.R. 89, 91 (9th Cir. BAP 1988); In re Stolrow's Inc., 84 B.R. 167, 171 (9th Cir. BAP 1988)).
On May 7, 2013, YBA filed a supplemental submission in opposition to the Motion for Relief from Automatic Stay. (ECF No. 2-8 at 84). Included in the supplemental submission was an appraisal of the Property dated May 1, 2013 and performed by Ross C. Bouman, a California State Licensed Appraiser. (ECF No. 2-9 at 32). Bouman arrived at an appraised value of $5, 800, 000, subject to the condition that the Property is appraised as "turn key, " with all finished materials installed and all features requiring repair assumed to have taken place. Id. at 27. Attached to the "turn key" appraisal was an invoice indicating that the "order date" of the appraisal was April 22, 2013. Id. at 59.
On May 9, 2013, the Bankruptcy Court conducted a hearing on the Motion for Relief from Automatic Stay. (ECF No. 3 at 60). At the hearing, counsel for YBA stated:
[W]e're the only ones that provided any evidence of what the value can be when it's repaired. The one appraisal that we did submit - it does come in at 5.8 million. We did have a preliminary indication from another appraisal. Their appraisal isn't done yet, but it's coming. And this is a preliminary hearing. And under those circumstances, we believe that the Court should set a matter of adequate protection, set a final hearing and have all these factors fleshed out in that hearing.
Id. at 77. The Bankruptcy Court stated:
I think the problem... is that your client is focusing on the value as it could be, not the value as it is; and the lender has made clear that it's prepared to accept the value as it is, which is the $1.5 million that Mr. Banayan believes that it is worth at this point in its unrepaired state. But the value - as we know, it's a moving target in property, and I think there's more than just the issue of value here when looking at the stay relief motion. There is, I believe, a question of whether or not this bankruptcy case is a bad faith filing, and because when one looks at the Arnold factors, Can-Alta factors, Stolrow factors, this case does hit nine out of the ten of them, and that's unfortunate for Mr. Banayan....
There's one asset. The secured creditor's lien is more than double of the admitted fair market value admitted by the debtor.... The bankruptcy does, as you describe it, offer a possibility of forestalling a foreclosure, but I think the equities here are such that given the history of litigation between the parties over this issue, the fact that this property is - I don't want to use the term underwater' - is overencumbered is one which can't be denied....
I agree this is not a new debtor syndrome. The debtor was not created on the eve of filing; in that respect it does not resemble the various cases where these factors have been discussed. But what is troubling is when one sees how the title went back and forth over time. Admittedly it has been in the debtor since - I think the date was 2009, and there is some dispute as to whether or not the creditor's predecessor was aware of these transfers and condoned them in order to make further advances on the loan. So the Court is not finding that the new debtor syndrome is present here. But this is a bankruptcy that appears to the Court to be one that is solely for the benefit of Mr. Banayan retaining this truly spectacular and beautiful house.... But I think that unless some kind of repair that is satisfactory to the lender would get this house sold quickly, and take out the lender's... almost $4 million in debt, this case is - seems to be stalled, and for the reasons that are cited in the reply brief, I'm going to grant stay relief.
Id. at 77-80.
On May 23, 2013, the Bankruptcy Court entered an Order granting the Motion for Relief from Automatic Stay, terminating the automatic stay for all purposes as to IndyMac in connection with the estate's and YBA's interest in the Property. (ECF No. 2-9 at 62). The Order was stayed for 14 days pursuant to Federal Rule of Bankruptcy Procedure 4001(a)(3). Id. at 63.
On May 29, 2013, YBA filed an "Emergency Motion for New Hearing under FRBP Rule 9023; to Alter or Amend the Order of the Court under FRBP Rule 9023; and, in the Alternative, Motion for Reconsideration under FRBP Rule 9024" ("Motion for Reconsideration"). (ECF No. 2-10 at 1). YBA stated:
After the [May 9, 2013] hearing was concluded, the Debtor received an appraisal from Ross C. Bouman, SRA, establishing a current, as is' value for the Subject Property. This appraisal was not available at the hearing and was received by Debtor on May 14, 2013.... The appraisal shows that the Debtor has equity in the Subject Property, setting a current, as is' value of $5, 100, 000. The valuation came as a shock to the Debtor and Mr. Banayan, but it has given the Debtor a potential life line for it to save this valuable, unique and beautiful property. The Debtor only asks that the Court consider this newly available ...