Opinion
Case No. 2:17-cv-01322-MMD
06-02-2017
In re R & S ST. ROSE LENDERS, LLC, Debtor. BRANCH BANKING AND TRUST COMPANY, Appellant, v. R & S ST. ROSE LENDERS, LLC, R&S ST. ROSE, LLC, R & S INVESTMENT GROUP, COMMONWEALTH LAND TITLE INSURANCE COMPANY, THE CREDITOR GROUP, AND US TRUSTEE, Appellees.
ORDER (Appellant's Emergency Motion to Stay — ECF No. 2)
I. SUMMARY
This case concerns an appeal of a decision of the Bankruptcy Court for the District of Nevada in which the court confirmed debtor R & S St. Rose Lenders, LLC's ("Lenders") Third Amended Plan of Liquidation. Before the Court is Branch Banking and Trust Company's ("BB&T") Emergency Motion to Stay Pending Appeal Pursuant to Federal Rule of Bankruptcy Procedure 8007 ("Motion") (ECF No. 2). Appellee/debtor Lenders filed a response (ECF No. 5) and BB&T filed a reply (ECF No. 9).
For the reasons discussed below, the Motion is denied.
II. BACKGROUND
While this appeal concerns the bankruptcy of Lenders, the bankruptcy of a related entity, R&S St. Rose, LLC ("Rose"), is relevant in understanding the procedural posture of this case. The following facts are taken from BB&T's Motion.
An exhaustive summary of the facts in this case can be found at ECF No. 793 of the underlying bankruptcy case, Case no. 11-14973-mkn ("Lenders Case").
Rose was created to purchase 38 acres of raw land located in Henderson, Nevada ("the Property"), while Lenders was formed for the sole purpose of real estate investment. (ECF No. 2 at 3.) Rose obtained a $29,305.250 ("Acquisition Loan") from Colonial Bank, N.A. ("Colonial") in August of 2005, which was secured by a first position deed of trust recorded against the Property. (Id. at 4.) In addition, Rose obtained additional funds from a group of investors whose loans were secured by a deed of trust ("Lenders DOT") that was recorded in second position against the Property. Rose obtained title to the property around August 25, 2005.
Lenders raised funds from private lenders and then loaned those funds to Rose so that Rose could purchase real property. (See Lenders Case, ECF No. 793 at 26.)
Colonial issued a second loan to Rose in 2007 for $43,980,000 ("Construction Loan") to develop the Property, which was secured through a Deed of Trust and Security Agreement and Fixture Filing with Assignment of Rents ("Colonial DOT"). Some of the Construction Loan was used to pay off the Acquisition Loan. (Id. at 5.) Colonial required (and believed it received) a first position deed of trust against the Property for the Construction Loan. Colonial conditioned disbursements of the Construction Loan on receiving this first positon deed of trust, which would have required that the Lenders DOT be released or subordinated. However, sometime between July and September of 2008, it became apparent that the Lenders DOT and not the Colonial DOT had been placed in first position against the Property.
In August of 2009, BB&T became the successor-in-interest to Colonial after the Federal Deposit Insurance Corporation was appointed as received for Colonial. ///
On April 4, 2011, Rose and Lenders filed separate voluntary Chapter 11 bankruptcy petitions ("Rose Case"). On August 2, 2013, Rose filed a proposed Chapter 11 liquidating plan ("the Rose Plan") in its bankruptcy case, which was then confirmed by order of the bankruptcy court on November 8. The Court ordered that the Property be sold. Pursuant to the Rose Plan, the net proceeds from this sale were then paid to Lenders. According to BB&T, Lenders reported a cash balance of $11,685,324 in March of 2017.
On April 18, 2016, Lenders filed a proposed Chapter 11 liquidating plan ("the Lenders Plan") in Lenders Case, and a revised version of this Plan was filed on November 1. (Id. at 9.) On November 7, the bankruptcy court held an evidentiary hearing, which resulted in the bankruptcy court's confirmation of the Lender's Plan. The bankruptcy court's order confirming the Lenders' Plan was entered on April 28, 2017. (See Lenders Case, ECF No. 1039.) That same day, BB&T filed a notice of appeal of the bankruptcy court's confirmation order as well as a motion to stay pending appeal (see Lenders Case, ECF No. 1043). (ECF No. 2 at 10.) On May 10, 2017, the motion to stay was heard by the bankruptcy court and continued to May 12, 2017, for further proceedings. However, on May 12, 2017, the bankruptcy court denied BB&T's motion to stay.
BB&T filed its election to appeal the bankruptcy court's confirmation order to the District Court on May 3, 2017.
III. DISCUSSION
BB&T argues that its emergency motion should be granted because, "[s]hould the Lenders Plan be implemented, approximately $5,000,000.00 will be distributed to the holders of claims in Class 1 beyond any meaningful recovery should BB&T succeed on various appeals." (ECF No. 2 at 10.) In its Motion, BB&T makes reference to three other distinct appeals, claiming that success on any of these appeals "will eliminate Lenders' ability to distribute funds under the Lenders Plan." (Id. at 3.) Although these appeals, if successful, may change the nature and amount of disbursement under the Lenders Plan, the Court may not consider the existence or potential success of these appeals in its analysis. This Court's jurisdiction and consideration of the Motion is limited to the appeal of the bankruptcy court's confirmation of the Lenders Plan in Lenders Case (and not the Rose Case). Because BB&T fails to focus its analysis on what, if any, irreparable injury would result should this Court fail to stay disbursement pending its final decision regarding this specific appeal, BB&T fails to meet the legal standard required of an emergency stay.
According to BB&T, they have pending appeals concerning the following: (1) the bankruptcy court's order overruling BB&T's objection to Lender's claim as alleged in the Rose Case; (2) the bankruptcy court's judgment against BB&T establishing the amount of the Lenders claim as alleged in the Rose Case; and (3) the bankruptcy court's order denying the substantive consolidation of the estates of Lenders and Rose. (ECF No. 2 at 3.)
BB&T presents six issues to this Court on appeal, asking whether the bankruptcy court erred in: (1) confirming debtor Lenders Plan; (2) waiving the 14-day stay set forth in FRBP 3020(e); (3) allowing claimants with fundamentally dissimilar claims in the single class 1 of lender claimants of the Plan, in violation of 11 U.S.C. § 1129(a)(1); (4) confirming the Plan where it does not meet the good faith standard in 11 U.S.C. § 1129(a)(3) because the Plan rewards participants in a business that is akin to a Ponzi Scheme; (5) concluding that the lender class of claimants set forth in class 1 comprises the requisite impaired consenting class, even though insider members of class 1 cast ballots, thereby compromising Lenders' ability to rely on class 1 to satisfy the dual threshold calculations of 11 U.S.C. § 1126(c); and (6) concluding that Lenders' claim as alleged in the Rose case was valid and that Lenders had an entitlement to proceeds arising from its claim as alleged in the Rose Case. (See Lenders Case, ECF No. 1074 at 1-2.) However, it does not appear that the Court has jurisdiction over the last issue presented as it indirectly asks this Court to review the outcome of the Rose Case.
A. Legal Standard
In deciding whether to issue a stay pending appeal of a bankruptcy court's order, the district court must consider four factors: "(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies." Nken v. Holder, 556 U.S. 418, 434 (2009) (quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987)) (internal quotation marks omitted). The district court balances these factors on a sliding scale, where a strong showing on one factor may offset a weaker showing on another. See Levia-Perez v. Holder, 640 F.3d 962, 964 (9th Cir. 2011) (citing Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011)). ///
Because the Court finds that BB&T fails to establish the likelihood of irreparable injury absent a stay, the Court declines to address the other factors.
B. Irreparable Injury
The mere possibility of irreparably injury is not sufficient to warrant a stay. See Nken, 556 U.S. at 435 (citing Winter v. Natural Res. Def. Council Inc., 555 U.S. 7, 22 (2008)). BB&T states that "irreparable harm exists because if a stay pending BB&T's appeal is denied, approximately $5,000,000.00 . . . will be distributed through liquidation to the 55 members of Class 1." (ECF No. 2 at 19.) Yet, BB&T does not argue that this $5 million will be difficult or impossible to recover should the Court refuse to stay distribution; instead, BB&T cites to a series of cases to speculate that "[s]ome courts have determined that a distribution of funds to diverse parties may constitute irreparable harm because once a distribution is made, funds may be difficult or impossible to recover." (Id.) Moreover, in its reply, BB&T asserts that irreparable injury flows from the "distribution of funds derived from Lenders' disputed claim as filed in the Rose Case that is the subject of the appeals related to the bankruptcy court judgment and order determining the amount of Lender's claim in the Rose Case." (ECF No. 9 at 9.) As noted previously, the appeals in the Rose Case and the appeal related to substantive consolidation of Rose and Lenders estates are not issues before this Court. The Court therefore cannot consider appeals of claim allowances in another bankruptcy (see ECF No. 9 at 10) in determining whether irreparable injury would result if this Court allowed distribution of the $5 million to Class 1 claimants in Lenders Case.
In its reply, BB&T also states that if Lenders commence distribution of the $5 million, this "would result in dissipation of the disputed funds and nullify any effects of a reversal of the order overruling the Lenders claim objection or the judgment on appeal." (ECF No. 9 at 10.) It is important to note that this Court is not deciding whether to reverse an order of the bankruptcy court overruling BB&T's claim objection. Rather, this Court is deciding only whether the Lenders Plan satisfies specific plan requirements of the Bankruptcy Code, specifically 11 U.S.C. §§ 1129(a)(1), 1129(a)(3), and 1126(c). --------
BB&T thus fails to establish that it will likely suffer irreparable injury in the absence of a stay. The Court therefore denies BB&T's Motion. ///
IV. CONCLUSION
The Court notes that the parties made several arguments and cited to several cases not discussed above. The Court has reviewed these arguments and cases and determines that they do not warrant discussion as they do not affect the outcome of the Motion.
It is hereby ordered that Appellant's emergency motion to stay (ECF No. 2) is denied.
DATED THIS 2nd day of June 2017.
/s/_________
MIRANDA M. DU
UNITED STATES DISTRICT JUDGE