Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: July 23, 2010
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. 08-23006-BB. Hon. Sheri Bluebond, Bankruptcy Judge, Presiding.
Before DUNN, MARKELL, and HOLLOWELL, Bankruptcy Judges.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Finding no proof in the record to establish that an admittedly substantial decline in the value of debtor's unimproved real property had occurred postpetition, the bankruptcy court ruled that cause did not exist to grant relief from the automatic stay to the loan servicing agent pursuant to 11 U.S.C. § 362(d)(1) and did not require adequate protection payments. The bankruptcy court further ruled that while debtor did not have equity in the property, the property was necessary to debtor's effective reorganization. Accordingly, the bankruptcy court also denied relief from the automatic stay under § 362(d)(2). The loan servicing agent appealed the order denying it relief from the automatic stay. Debtor filed a cross appeal, asserting that the loan servicing agent lacked standing to bring the motion in the first instance.
Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532. All " Rule" or " FRBP" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
We AFFIRM.
I. FACTS
A. The Loan (and the Parties to the Loan)
The Preserve, LLC (" The Preserve") is a limited liability company that owns as its primary asset 1, 331 acres of undeveloped land near Beaumont, CA (" the Property"). The Preserve intends to use the Property for a master planned community, the " Legacy Highlands, " which is to consist of residential single family homes, parks, school sites, trails, and a gated " active adult" community. The Preserve actively pursued obtaining the necessary environmental and other permits, as well as funding, for development of the Property. To that end, The Preserve entered into the financial transaction that is the basis for this appeal.
Point Center Financial, Inc. (" PCF") is a private trust deed lender that lends on commercial properties. PCF originates loans secured by real estate and funded by private investors. After PCF has approved a loan application, PCF begins to raise money from individual investors (" Investors") to fund that loan. The Investors own fractional, tenant-in-common interests in the loan, including the trust deed securing the loan, in direct proportion to the amounts of their respective investments.
On September 21, 2006, The Preserve executed a promissory note (" Note") in the principal amount of $39,000,000, payable " to the order of the lenders identified on Exhibit 'A'. . . ." Exhibit A to the Note consisted of seven pages identifying Investors in 111 fractionalized interests in the Note. The Note provided for monthly interest-only payments in the amount of $406,250 commencing December 1, 2006, until the maturity date of November 1, 2008, at which time the entire balance of the Note was due. Payment of the Note was to be made " c/o Point Center Financial, Inc." Also on September 21, 2006, The Preserve executed an addendum to the Note, which called for a staged funding of the loan.
The loan was a refinance of a previously existing loan between the Preserve and PCF.
The record reflects that after the Note was executed, PCF continued selling fractionalized interests to additional Investors.
To secure payment of the Note, The Preserve executed a deed of trust (" Trust Deed") in favor of National Financial Lending, Inc., who was designated as the Trustee for the benefit of the beneficiaries identified in Exhibit C to the Trust Deed. Exhibit C to the Trust Deed consisted of seven pages identifying the Investors holding 111 fractionalized interests in the Trust Deed.
National Financial Lending, Inc. is an entity related to PCF.
After the Note and Trust Deed were executed and recorded, PCF prepared a Loan Servicing Agreement (" LSA") dated September 28, 2006, which it required each of the Investors to sign. As relevant to this appeal, the LSA recitals state that the Investors " desire to appoint [PCF] as their agent to . . . service the [Note] and to protect their interest in and enforce their rights under the [Note and Trust Deed], . . . in accordance with the terms of [the LSA]."
To establish this agency relationship, the LSA contained provisions empowering PCF to act on behalf of the Investors:
2. Appointment. The [Investors] hereby appoint [PCF] as their agent . . . to service the [Note], to protect their interest in and enforce their rights under the [Note and Trust Deed], . . . in accordance with the terms of [the LSA]. [PCF] hereby accepts this appointment and agrees to exercise diligent and good faith efforts in the execution of its duties as agent in accordance with reasonable and customary commercial practice.
The LSA authorized PCF to enforce the Investors' rights with respect to the Note and Trust Deed as follows:
8. Enforcement. Upon the . . . occurrence of a . . . default under the Loan Documents . .., [PCF] . . . shall exercise the power of sale contained in the [Trust Deed] . . . .
To ensure that PCF had the sole authority to enforce the Investors' rights under the Note and Trust Deed, the LSA provided that the Investors waived their rights to foreclose upon or partition their interests in the Note and Trust Deed. In addition, paragraph 4 of the LSA provided that PCF would " maintain possession of all original Loan Documents on behalf of all [Investors]. . . ." Finally, paragraph 18 of the LSA granted PCF the Investors' power of attorney to perform the acts authorized by the LSA.
PCF prepared, and on October 23, 2006, recorded, a Memorandum of Servicing Agreement, which identified the LSA and set forth PCF's rights to act on behalf of the Investors.
B. Default and Bankruptcy Proceedings
The loan to The Preserve was never fully funded. PCF contends that it stopped funding the loan in October 2007 when The Preserve fell substantially behind on the construction schedule on which the loan was based. The Preserve contends that it defaulted on the construction schedule because PCF failed to fund the reserves required by the parties' agreement.
Ultimately, PCF initiated non-judicial foreclosure proceedings to enforce the Trust Deed, and The Preserve commenced litigation (" Litigation") in the Riverside, California Superior Court against PCF based on its failure to fully fund the loan. The Preserve filed a voluntary chapter 11 petition on September 25, 2008. The initiation of the bankruptcy case stayed the foreclosure sale that was set for September 29, 2008.
The Litigation has been removed to the bankruptcy court and is pending.
On June 16, 2009, PCF filed a motion for relief from the automatic stay (" RFS Motion") naming itself as the secured creditor holding a claim in the amount of $43,301,423, secured by a first deed of trust on the Property. The RFS Motion included the bankruptcy court's local form " Real Property Declaration" executed by Dan Harkey, who represented himself to be " President of [PCF] ('Movant'), which is the designated agent for the various fractionalized interest holders on the loan to [The Preserve] secured by the lien against the Property."
The appendix to the RFS Motion listed 112 Investors; that number was later increased, first to 175, then to 182.
The RFS Motion sought relief from the automatic stay " for cause" pursuant to § 362(d)(1), on the basis that its interest in the Property was not adequately protected, either because there was no equity cushion, or because the fair market value of the Property was declining, and The Preserve was not making payments sufficient to protect PCF from the declining value of the Property. The RFS Motion also sought relief from the automatic stay pursuant to § 362(d)(2), asserting that The Preserve had no equity in the Property and that the Property was not necessary for an effective reorganization.
The RFS Motion was supported by an appraisal (" PCF Appraisal") valuing the property at $15,970,000. The PCF Appraisal was prepared by PCF's expert, Paul Chandler, as set forth in Mr. Chandler's declaration dated June 16, 2009. In reaching the $15,970,000 value for the Property, Mr. Chandler relied heavily on what the parties refer to as the " Beaumont Market Trend Report, and on the fact that a judgment (the " CEQA Judgment") had been entered on March 30, 2009, against The Preserve and the City of Beaumont. The CEQA Judgment mandated that the City of Beaumont " set aside and vacate its approvals of the Legacy Highlands Project . . ." and that The Preserve suspend all activity on the Project " until it has taken the actions necessary to bring the Project into compliance with CEQA."
PCF ultimately submitted into evidence two additional declarations by Mr. Chandler on the issue of the value of the Property (collectively, " Chandler Declarations").
" CEQA" is the acronym for the California Environmental Quality Act.
The Preserve opposed the RFS Motion alleging, inter alia, that PCF had no standing as a party in interest to prosecute the RFS Motion. Relying upon an " Appraisal Review Report" prepared by its expert, C. Christopher Louis (" Louis Declaration"), The Preserve also challenged the PCF Appraisal as being " materially flawed."
The bankruptcy court conducted an evidentiary hearing on the RFS Motion on September 17, 2009. As required by the bankruptcy court's " Order Setting Date for Evidentiary Hearing and Establishing Procedures for Conduct of Trial, " PCF submitted the Chandler Declarations and the PCF Appraisal as its evidence relating to value of the Property. The Chandler Declarations stated generally that the value of the Property was declining and that home values in the Beaumont, California, area had dropped over the immediately preceding quarters. The Chandler Declarations stated specifically that the median home price dropped 38.5 percent from September 2007 through July 2009, including a month-to-month decline from April to May 2009; that the value of active adult housing dropped between 15.4 and 23.5 percent from September 2008 to July 2009; and that although home sales rose by 25 percent in the surrounding area in June 2009, the increase was on account of decreasing prices of 32.7 percent. The Chandler Declarations asserted that housing prices were relevant to the valuation of the Property because land values would correspondingly rise or fall with housing prices.
A preliminary hearing on the RFS Motion was held July 14, 2009 (" July 14 Hearing"). At the July 14 Hearing, the bankruptcy court ruled in favor of The Preserve on the requested relief under § 362(d)(2). The bankruptcy court recognized that there was no equity in the Property. However, the bankruptcy court stated that the " reorganization is largely going to succeed or fail because of this particular piece of property, " such that the court could find that it was " necessary to an effective reorganization." The bankruptcy court acknowledged that at some point reorganization might become " hopeless, " but that it was not yet at that point. Based on this ruling, § 362(d)(2) was not a part of subsequent proceedings on the RFS Motion. The order that ultimately was entered on the RFS Motion did not address the claim for relief under § 362(d)(2).
The Preserve neither cross-examined Mr. Chandler on the PCF Appraisal or the Chandler Declarations, nor submitted an appraisal of its own. Instead, The Preserve presented evidence through the Louis Declaration to demonstrate that the Property was not likely to decline in value prospectively. Specifically, the Louis Declaration stated that the real estate market currently was in the bottom of a trough, was not declining, but rather was beginning to improve; that the housing supply had decreased; that construction spending had increased; and that home sales had risen 7.2 percent between June and July 2009.
PCF cross-examined Mr. Louis on the Louis Declaration. This was the only live testimony presented at the Evidentiary Hearing.
In addition to the Louis Declaration, The Preserve also submitted declarations from David Golkar (" Golkar Declaration") and John Nolan (" Nolan Declaration"). The Golkar Declaration and the Nolan Declaration addressed the impact of the CEQA Judgment on the Property's value. In particular, they disputed the contentions in the PCF Appraisal that the CEQA Judgment had resulted in the loss of " entitlements" to develop the Property, and they outlined the progress The Preserve had made to correct the deficiencies raised in the CEQA Judgment.
The Nolan Declaration stated that Mr. Nolan's firm was working on making the necessary adjustments to gain CEQA approval; that a revocation of the approvals was not a death-knell, but only a necessary step in providing further analysis; that the finding of the CEQA court was only that the project was non-compliant, not that it was prohibited; and that the City of Beaumont was still supportive of the project. The Golkar Declaration stated that upon completion of the corrective work, the entitlements would be restored, and that the City of Beaumont had voted to proceed with the corrections necessary for the water portion of the environmental impact report.
At the conclusion of the evidentiary hearing, the bankruptcy court found, based upon the Louis Declarations, which the bankruptcy court determined to be credible, that the Property was not currently declining in value. The bankruptcy court then requested additional briefing on the issue of adequate protection; specifically, what reference point in time should the bankruptcy court use to determine whether property is declining in value for the purposes of adequate protection - the date the petition was filed, the date the RFS Motion was filed, or the date of the hearing? The bankruptcy court also requested additional briefing on the issue of whether the LSA was sufficient to authorize PCF to prosecute the RFS Motion or whether PCF instead needed a valid power of attorney from each of the Investors, which the bankruptcy court found it did not have.
In the additional briefing, The Preserve emphasized that PCF lacked authority to enforce the Trust Deed, because it did not have the agreement of 100% of the Investors to be governed by Investors holding more than 50% of the ownership interests as was required by Cal. Civ. Code § 2941.9. Further, The Preserve asserted that PCF could not act in the name of the Investors because it did not hold a valid power of attorney. PCF countered that Cal. Civ. Code § 2941.9 was not mandatory, and that the Investors had opted to enter into the LSA rather than be bound by the provisions of Cal. Civ. Code § 2941.9.
Cal. Civ. Code § 2941.9 provides a process through which all beneficiaries under a trust deed may agree to be governed by the holders of more than 50% of beneficial interests in the same property. Its terms are discussed more fully in the Discussion, infra.
Prior to the post-briefing hearing, Deep Canyon Holdings, Inc. (" DCHI"), filed its separate opposition to the RFS Motion, based on PCF's alleged lack of authority to file the RFS Motion on behalf of the Investors. When PCF notified The Preserve that additional investments were needed to fully fund the loan, The Preserve contacted DCHI and arranged for additional investments. DCHI contends that it made two initial investments with PCF in the total amount of $1,341,600, after which PCF refused to accept further investments from DCHI. DCHI asserted that it believed it held more than 50% of the non-PCF interests in the Note and Trust Deed, that it had never signed the LSA to the effect that the LSA never became effective, and that as a precaution, it had sent a letter to PCF, purportedly in reliance on Cal. Civ. Code § 2941.9, acting as the majority interest holder which terminated any authority to act as loan servicer that the LSA may have bestowed upon PCF.
After the additional briefing was complete, the bankruptcy court held a hearing for further argument and to present its ruling on the RFS Motion. After reviewing its earlier findings of fact, the bankruptcy court held that PCF had authority to bring the motion. The bankruptcy court found that the Property had not necessarily declined in value after the petition date, but instead that there could have been a cataclysmic drop in value before or on or about the petition date. Based on the evidence presented, the bankruptcy court could not determine when the decline in value of the Property had occurred. Based on that conclusion, and its finding that the Property was not continuing to decline in value, the bankruptcy court ruled that no adequate protection payments were necessary. The bankruptcy court entered its order denying the RFS Motion on the basis that PCF had not established " cause" for relief from the automatic stay and because:
The bankruptcy court stated that, technically, the RFS Motion should have been filed naming each of the Investors as the " movant, " with PCF acting as their agent, but that this defect could be remedied by an amendment to the RFS Motion.
(1) PCF does not hold a valid power of attorney for [the Investors] and therefore should have brought [the RFS Motion] in [the] name of [the Investors] in its capacity as an authorized agent; (2) [PCF] failed to establish that [the] property's decline in value occurred after the petition date rather than at or shortly before the petition date; (3) [the bankruptcy court] found that [the] property value was not likely to decline in the foreseeable future.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUES
1. Whether the bankruptcy court erred when it determined that PCF, as agent for the Investors, had standing to pursue the RFS Motion.
2. Whether the bankruptcy court erred in finding that PCF's interest in the Property was adequately protected because the Property's value was not declining prospectively.
3. Whether the bankruptcy court erred in finding that the Property was necessary to The Preserve's effective reorganization.
4. Whether the bankruptcy court abused its discretion when it denied the RFS Motion.
IV. STANDARDS OF REVIEW
Standing is a legal issue that we review de novo. Loyd v. Paine Webber, Inc., 208 F.3d 755, 758 (9th Cir. 2000); Kronemyer v. Am. Contractors Indemn. Co. (In re Kronemyer), 405 B.R. 915, 919 (9th Cir. BAP 2009). De novo review requires that we consider a matter anew, as if it had not been heard before, and as if no decision had been rendered previously. United States v. Silverman, 861 F.2d 571, 576 (9th Cir. 1988); B-Real, LLC v. Chaussee (In re Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008).
We review findings of fact for clear error, giving due regard to the opportunity of the bankruptcy court to judge the credibility of the witnesses. FRBP 8013. " A factual finding is clearly erroneous if the appellate court, after reviewing the record, has a firm and definite conviction that a mistake has been committed." Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344 B.R. 94, 99 (9th Cir. BAP 2006).
The decision of a bankruptcy court whether or not to grant relief from the automatic stay under § 362(d) is reviewed for abuse of discretion. Mataya v. Kissinger (In re Kissinger), 72 F.3d 107, 108 (9th Cir. 1995); In re Kronemyer, 405 B.R. at 919. To determine whether the bankruptcy court abused its discretion, we conduct a two-step inquiry: (1) we review de novo whether the bankruptcy court " identified the correct legal rule to apply to the relief requested" and (2) if it did, whether the bankruptcy court's application of the legal standard was illogical, implausible or " without support in inferences that may be drawn from the facts in the record." United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009).
V. DISCUSSION
Section 362(a) provides that the filing of a petition under title 11 creates an automatic stay of, inter alia, " any act to obtain possession of property of the estate or of property from the estate. . . ." 11 U.S.C. § 362(a)(3). A party seeking to enforce rights under a deed of trust must obtain " relief" from the automatic stay. As relevant to this appeal, § 362(d) requires the bankruptcy court to grant relief from the automatic stay to a " party in interest, " in the following circumstances:
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; [and]
(2) with respect to a stay of an act against property under subsection (a) of this section, if -
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
The issues raised by this appeal require that we first determine whether PCF is a " party in interest, " for purposes of § 362(d).
A. PFC Was Authorized to Prosecute the RFS Motion
Because the term " party in interest" is not defined in the Bankruptcy Code, whether a moving party has status as " a party in interest" under § 362(d) is a factual matter to be determined on a case-by-case basis, taking into account the claimed interest and the impact of the automatic stay on that interest. In re Kronemyer, 405 B.R. at 919. A party in interest can include any party that has a pecuniary interest in the case, has a practical stake in the resolution of the case, or is impacted by the automatic stay. Brown v. Sobczak (In re Sobczak), 369 B.R. 512, 517-18 (9th Cir. BAP 2007) (internal citations omitted). The Eleventh Circuit has stated that " [a] servicer is a party in interest in proceedings involving loans which it services." Greer v. O'Dell (In re O'Dell), 305 F.3d 1297, 1302 (11th Cir. 2002). Under the facts of this case, we agree that PCF, as the loan servicer, is a party in interest for purposes of the RFS Motion.
A motion for relief from the automatic stay is a contested matter to be presented in accordance with Rule 9014. Rule 4001(a). Rule 9014(c) provides that Rule 7017 is applicable in contested matters. In turn, Rule 7017 incorporates Fed.R.Civ.P. 17 with respect to adversary proceedings. Fed.R.Civ.P. 17(a) provides that " [a]n action must be prosecuted in the name of the real party in interest . . . ."
A party entitled to enforce a promissory obligation is a real party in interest. In re Jacobson, 402 B.R. 359, 366 (Bankr. W.D. Wash. 2009); see also U-Haul Int'l v. Jartran, Inc., 793 F.2d 1034, 1038 (9th Cir. 1986) (stating a real party in interest is " any party to whom the relevant substantive law grants a cause of action"); In re Aniel, 427 B.R. 811, 816 (Bankr. N.D. Cal. 2010); In re Weisband, 427 B.R. 13, 18 (Bankr. D. Ariz. 2010); In re Wilhelm, 407 B.R. 392, 398 (Bankr. D. Idaho 2009). Thus, we look to California law to determine if PCF can enforce the Note.
1. Under California law and the LSA, PCF is an agent with authority to enforce the Note through a non-judicial foreclosure proceeding
California law permits a note to be enforced through the non-judicial foreclosure procedures established in Cal. Civ. Code § § 2924-2924i. A " trustee, mortgagee or beneficiary or any of their authorized agents" is entitled to enforce the note through a non-judicial foreclosure proceeding. Cal. Civ. Code § 2924(a)(1) (2006)(emphasis added); see also Morgera v. Countrywide Home Loans, Inc., at * 20 (E.D. Cal. Jan. 11, 2010).
Because the LSA was in writing, an agency relationship was created by the Investors' agreement that PCF act on their behalf. See Restatement (Third) of Agency § 3.01 (2006); Cal. Civ. Code § 2309 (2006). In this case, paragraph 8(a)(i)(A) of the LSA specifically grants PCF the right to seek relief from a stay of the foreclosure. Through the LSA the Investors agreed that PCF was their agent for purposes of enforcing the Note through a non-judicial foreclosure. PCF therefore has authority to enforce the Note under Cal. Civ. Code § 2924(a)(1). With authority to enforce the Note, PCF has status as a real party in interest. Accordingly, under Fed.R.Civ.P. 17(a), PCF was authorized to prosecute the RFS Motion as a party in interest.
2. Cal. Civ. Code § 2941.9 does not compel a different result
Cal. Civ. Code § 2941.9(a) provides a mechanism for multiple beneficiaries under a deed of trust to agree to be governed by beneficiaries holding a majority of the record beneficial interests secured by the same property. Similarly, Cal. Civ. Code § 2941.9(b) provides a mechanism for the holders of undivided interests in notes to agree to be governed by interest holders holding a majority of the record interests in the notes.
See Appendix A to this Memorandum for the complete text of Cal. Civ. Code § 2941.9.
We agree with PCF that Cal. Civ. Code § 2941.9 is not mandatory. It offers an alternative for the governance of multiple interests in real property secured transactions. " Civil Code § 2941.9 provides decision-making procedures for when there are multiple beneficiaries of a deed of trust and no co-lender or similar agreement between or among such beneficiaries exists." Roger Bernhardt and Charles A. Hansen, et al., California Mortgages, Deeds of Trust and Foreclosure Litigation, p. 865 (4th ed. 2010). The LSA is a co-lender agreement within the contemplation of Cal. Civ. Code § 2941.9.
We note that paragraph 8a of the LSA provides PCF with complete authority to enforce the Note and Trust Deed, while paragraphs 8b and 8c require the approval of 50% of the interests before certain other actions are permitted, such as exercising rights under any Disbursement Agreement, modifying the terms of the loan documents, or commencing a judicial (as opposed to a non-judicial) foreclosure. These disparate approval provisions reflect that the LSA was written and executed with the provisions of Cal. Civ. Code § 2941.9 in mind, and suggest that the Investors intended to authorize PCF to enforce the Note and Trust Deed. If individual Investors contest PCF's authority to act under the LSA, they can initiate appropriate proceedings in an appropriate forum to pursue their claims. As the bankruptcy court noted, no evidence of a final determination in any such proceeding has been presented to date.
B. The Bankruptcy Court Did Not Err in Denying the RFS Motion
1. PCF did not lack adequate protection of its interest in the Property
In the RFS Motion, PCF sought relief from the automatic stay " for cause" pursuant to § 362(d)(1), on the basis that its interest in the Property was not adequately protected.
" Adequate protection is provided to safeguard the creditor against depreciation in the value of its collateral during the reorganization process. If the value of the collateral decreases, the creditor is entitled to cash payments so that the value of its interest in the collateral remains constant." First Fed. Bank Cal. v. Weinstein (In re Weinstein), 227 B.R. 284, 296 (9th Cir. BAP 1998) (citations omitted) (emphasis added).
We previously have held that adequate protection payments are intended to compensate a secured creditor only for losses occasioned by the imposition of the automatic stay. See Paccom Leasing Corp. v. Deico Elects., Inc. (In re Deico Elects., Inc.), 139 B.R. 945, 947 (9th Cir. BAP 1992). Because the bankruptcy court did not find when the value of the Property declined, but concluded that any decline in the value of the Property could have occurred before or at about the time of the petition date, the Property value did not necessarily decline in value during or as a result of the bankruptcy process. The bankruptcy court further found that the value of the Property was not likely to decline further, based upon the evidence presented through the Louis Declaration. The implicit conclusion from these findings was that PCF was adequately protected.
As we previously noted, we review the decision to deny a motion for relief from the automatic stay for abuse of discretion. In re Kissinger, 72 F.3d at 108; In re Kronemyer, 405 B.R. at 919. This requires that we first review de novo whether the bankruptcy court " identified the correct legal rule to apply to the relief requested." Hinkson, 585 F.3d at 1261-62.
The bankruptcy court clearly understood the need to determine whether PCF and its Investors were adequately protected. The bankruptcy court took evidence and authorized extensive briefing on the issue. In finding that the decline in value of the Property, albeit substantial, was attributable to general economic conditions, and that the decline possibly predated or was contemporaneous with the filing of the bankruptcy petition, the bankruptcy court evinced a clear understanding of the applicable legal rule as set forth in In re Deico Elects., Inc.
We next determine whether the bankruptcy court's application of the legal rule in this case was " without support in inferences that may be drawn from the facts in the record." Hinkson, 585 F.3d at 1261-62. We will not reverse the bankruptcy court unless we have a definite and firm conviction that it made a clear error in judgment. Valley Eng'rs, Inc. v. Electric Eng'g Co., 158 F.3d 1051, 1057 (9th Cir. 1998).
PCF provided evidence through the PCF Appraisal and the Chandler Declarations that the value of the Property as of May 15, 2009, was $15,970,000. The Preserve presented evidence, which the bankruptcy court found credible, that this also was the value of the Property as of the petition date given the dramatic (" cataclysmic") decline in property values prior to and as of September 2008. There is adequate support in the record for this finding. Further, the bankruptcy court's finding that the Property was not likely to decline in the immediate future is an inference that also is supported by the record.
In these circumstances, the bankruptcy court did not err when it determined that PCF's interest in the Property was adequately protected. Accordingly, the bankruptcy court did not abuse its discretion when it denied the § 362(d)(1) claim for relief in the RFS Motion.
PCF asserts that the bankruptcy court improperly imposed on PCF the burden to prove that its interest in the Property was not adequately protected. In support of this assertion, PCF points to § 362(g), which provides:
In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section -
(1) the party requesting such relief has the burden of proof on the issue of the debtor's equity in the property; and
(2) the party opposing such relief has the burden of proof on all other issues.
The bankruptcy court did not impose on PCF the burden to prove it was not adequately protected. It simply found, based on the evidence presented, that the value of the Property had not declined as a result of the automatic stay. As a consequence, and as a matter of law, PCF was not entitled to adequate protection. The suggestion by the bankruptcy court that different evidence might have produced a different result does not reflect a misallocation of the burden of proof.
2. The bankruptcy court did not err in finding that the Property was necessary to The Preserve's effective reorganization
PCF also sought relief from the automatic stay pursuant to § 362(d)(2). The bankruptcy court found that although The Preserve likely had no equity in the Property, the Property was necessary for an effective reorganization.
Property is necessary for an effective reorganization for purposes of § 362(d)(2) if " the property is essential for an effective reorganization that is in prospect. This means . . . that there must be 'a reasonable possibility of a successful reorganization within a reasonable time.'" United Sav. Ass'n Tex. v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 375-76, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) (emphasis in original) (quoting In re Timbers of Inwood Forest Assoc., Ltd., 808 F.2d 363, 370-71 & nn.12-13 (5th Cir. 1987) (en banc)). " While it is true that a relief from the stay hearing should not be converted into a confirmation hearing, 'the " effective reorganization" requirement . . . requires a showing by a debtor . . . that a proposed or contemplated plan is not patently unconfirmable and has a realistic chance of being confirmed.'" Sun Valley Newspapers, Inc. v. Sun World Corp. (In re Sun Valley Newspapers, Inc.), 171 B.R. 71, 75 (9th Cir. BAP 1994) (internal citations omitted). Mere indispensability of the property for the debtor's survival is insufficient. In re Dev., Inc., 36 B.R. 998, 1005 (Bankr. D. Haw. 1984).
The bankruptcy court found that, at the time the motion was initially considered, the Property was necessary to The Preserve's effective reorganization:
Yes, there are other assets and I did rule it wasn't a single asset case but I'm satisfied that the reorganization is largely going to succeed or fail because of this particular piece of property. So that, to me, we've gotten over the prong about it being necessary to an effective reorganization. Now there may come a time when I conclude that it's hopeless in which case no matter how essential this property is, if it's hopeless it's not necessary to an effective reorganization and I'm not ready to go there yet.
For now, for the purposes of this discussion, it seems to me that the property is necessary to an effective reorganization. There isn't equity in the property . . . .
Tr. of July 14, 2009 H'ring at 11:24-12:11.
On the record before us it is clear that the bankruptcy court understood the correct legal rule in evaluating the § 362(d)(2) request for relief contained in the RFS Motion. On the issue of whether the Property was necessary to an effective reorganization at that point, the record, specifically as set forth in The Preserve's opposition to the RFS Motion, reflects that " the Debtor is continuing in the development process through post-petition borrowings and ongoing work to ensure the development process stays on track and maintain the value of the Legacy Highlands development." As we stated previously, the Panel can only reverse if it finds the bankruptcy court abused its discretion in its finding that relief from stay should not have been granted. On this record we cannot say that the bankruptcy court made a clear error in judgment.
Again, the Order denying the RFS Motion does not address the § 362(d)(2) claim for relief.
VI. CONCLUSION
Under the LSA, PCF had standing to bring the RFS Motion, and the bankruptcy court did not err in so determining.
In finding that PCF did not lack adequate protection of its interest in the Property, the bankruptcy court did not shift the burden of proof to PCF. The bankruptcy court's finding that PCF's interest in the Property was adequately protected because the Property's value was not declining prospectively was not clearly erroneous.
The bankruptcy court's finding that the Property was necessary to The Preserve's effective reorganization as of the time the RFS Motion was being considered was not clearly erroneous.
The bankruptcy court did not abuse its discretion when it denied the RFS Motion.
We AFFIRM.
APPENDIX A
Cal. Civ. Code § 2941.9 provides:
(a) The purpose of this section is to establish a process through which all of the beneficiaries under a trust deed may agree to be governed by beneficiaries holding more than 50 percent of the record beneficial interest of a series of notes secured by the same real property or of undivided interests in a note secured by real property equivalent to a series transaction, exclusive of any notes or interests of a licensed real estate broker that is the issuer or servicer of the notes or interests or any affiliate of that licensed real estate broker.
(b) All holders of notes secured by the same real property or a series of undivided interests in notes secured by real property equivalent to a series transaction may agree in writing to be governed by the desires of the holders of more than 50 percent of the record beneficial interest of those notes or interests, exclusive of any notes or interests of a licensed real estate broker that is the issuer or servicer of the notes or interests of any affiliate of the licensed real estate broker, with respect to actions to be taken on behalf of all holders in the event of default or foreclosure for matters that require direction or approval of the holders, including designation of the broker, servicing agent, or other person acting on their behalf, and the sale, encumbrance, or lease of real property owned by the holders resulting from foreclosure or receipt of a deed in lieu of foreclosure.
(c) A description of the agreement authorized in subdivision (b) of this section shall be disclosed pursuant to Section 10232.5 of the Business and Professions Code and shall be included in a recorded document such as the deed of trust or the assignment of interests.
(d) Any action taken pursuant to the authority granted in this section is not effective unless all the parties agreeing to the action sign, under penalty of perjury, a separate written document entitled " Majority Action Affidavit" stating the following:
(1) The action has been authorized pursuant to this section.
(2) None of the undersigned is a licensed real estate broker or an affiliate of the broker that is the issuer or servicer of the obligation secured by the deed of trust.
(3) The undersigned together hold more than 50 percent of the record beneficial interest of a series of notes secured by the same real property or of undivided interests in a note secured by real property equivalent to a series transaction.
(4) Notice of the action was sent by certified mail, postage prepaid, with return receipt requested, to each holder of an interest in the obligation secured by the deed of trust who has not joined in the execution of the substitution or this document.
This document shall be recorded in the office of the county recorder of each county in which the real property described in the deed of trust is located. Once the document in this subdivision is recorded, it shall constitute conclusive evidence of compliance with the requirements of this subdivision in favor of trustees acting pursuant to this section, substituted trustees acting pursuant to Section 2934a, subsequent assignees of the obligation secured by the deed of trust, and subsequent bona fide purchasers or encumbrancers for value of the real property described therein.
(e) For purposes of this section, " affiliate of the licensed real estate broker" includes any person as defined in Section 25013 of the Corporations Code who is controlled by, or is under common control with, or who controls, a licensed real estate broker. " Control" means the possession, direct or indirect, of the power to direct or cause the direction of management and policies.