In re: Rcs Capital Development, LLC American Childcare Properties, LLC Accp I, Llc ( 2013 )

FILED
JUL 16 2013
1
SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. AZ-12-1626-JuTaAh
)
6 RCS CAPITAL DEVELOPMENT, LLC; ) Bk. No. 11-28746-RJH
AMERICAN CHILDCARE PROPERTIES,) (jointly administered with
7 LLC; ACCP I, LLC, ) 11-29741-RJH, 11-29742-RJH)
)
8 Debtors. )
______________________________)
9 A.B.C. LEARNING CENTRES LTD.; )
ABC DEVELOPMENTAL LEARNING )
10 CENTERS (USA), INC., )
)
11 Appellants, )
) M E M O R A N D U M*
12 v. )
)
13 RCS CAPITAL DEVELOPMENT, LLC; )
AMERICAN CHILDCARE PROPERTIES,)
14 LLC; ACCP I, LLC, )
)
15 Appellees. )
______________________________)
16
Argued and Submitted on June 21, 2013
17 at Phoenix, Arizona
18 Filed - July 16, 2013
19 Appeal from the United States Bankruptcy Court
for the District of Arizona
20
Honorable Randolph J. Haines, Chief Bankruptcy Judge, Presiding
21 _______________________
22 Appearances: Carson T.H. Emmons Esq., of Baird, Williams &
Greer, LLP, argued for Appellees RCS Capital
23 Development, LLC, American Childcare Properties,
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
-1-
1 LLC and ACCP I, LLC.**
_________________________
2
Before: JURY, TAYLOR, and AHART***, Bankruptcy Judges.
3
4 Appellants, A.B.C. Learning Centres Limited (ABC Learning)
5 and its affiliate, ABC Developmental Learning Centers (U.S.A.),
6 Inc. (ABC USA) (collectively, ABC) appeal from the bankruptcy
7 court’s order confirming the Fifth Amended Chapter 111 Plan
8 dated October 22, 2012, filed by RCS Capital Development, LLC
9 (RCS), American Childcare Properties, LLC (ACCP), and ACCP I,
10 LLC (collectively, RCS, ACCP and ACCP I, LLC are referred to as
11 Debtors). We AFFIRM.
12 I. FACTS
13 This appeal follows from our decision in the related appeal
14 involving the same parties (BAP No. AZ-12-1381-JuTaAh). There,
15 we affirmed the bankruptcy court’s orders: (1) granting RCS’s
16 motion for summary judgment (MSJ) and, thus, allowing RCS to set
17 off its $57 million judgment adverse to ABC against ABC’s $41
18 million proof of claim based on litigation pending against
19 Debtors and others; and (2) denying ABC’s cross MSJ which
20
**
John J. Fries and Joshua L. Kahn of Ryley Carlock &
21
Applewhite and Andrew Rosenblatt and Eric Daucher of Chadbourne &
22 Parke LLP appeared on brief for Appellants A.B.C. Learning
Centres Ltd. and ABC Developmental Learning Centers (USA), Inc.
23 Appellants chose not to appear at argument in accordance with the
Panel’s June 11, 2013 order.
24
***
Hon. Alan M. Ahart, United States Bankruptcy Judge for
25 the Central District of California, sitting by designation.
26 1
Unless otherwise indicated, all chapter and section
27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 and
“Rule” references are to the Federal Rules of Bankruptcy
28 Procedure.
-2-
1 asserted legal and equitable defenses to the setoff. Since we
2 stated the facts leading up to the bankruptcy court’s decisions
3 on the setoff issue in our memorandum in the related appeal, we
4 will not repeat them here other than to amplify them as may be
5 appropriate to this appeal.
6 A. RCS’s Request for Relief From Stay in ABC’s Chapter 15
7 After the bankruptcy court entered the order granting RCS’s
8 MSJ on the setoff issue and quashing all lis pendens which ABC
9 recorded against RCS properties, RCS filed a motion in the
10 Delaware bankruptcy court seeking to vacate the orders:
11 (1) imposing the automatic stay in ABC’s chapter 15 case; and
12 (2) finding that RCS had willfully violated the automatic stay.
13 On September 20, 2012, the Delaware bankruptcy court denied
14 RCS’s motion as premature because the order granting RCS’s MSJ
15 remained subject to reconsideration and appeal.
16 B. Confirmation of Debtors’ Chapter 11 Plan
17 Debtors then proceeded toward confirmation of their plan,2
18 which proposed, as allowed by the MSJ order, to pay ABC’s claim
19 in full through setoff and to pay other unsecured creditors in
20 full through cash on hand and post-confirmation collections. In
21 particular, the funding for the plan would come from: (1) cash
22 on hand ($56,000); (2) proceeds from the Ann Road Property (as
23 described below); (3) proceeds from the distributions to RCS
24 from its participation in the development of the Russell Road
25
26
2
27 The plan was a “joint” plan proposed by RCS, ACCP, and
ACCP I, LLC. The bankruptcy court approved the Disclosure
28 Statement by order dated June 21, 2012.
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1 Property;3 and (4) pursuing collection of the USD$28,486,206.64,
2 plus interest, owed by ABC to RCS as a result of the setoff.
3 The plan designated five classes of claims:
4 Class 1 - City of North Las Vegas Secured Claim: The
City of North Las Vegas had a lien for unpaid property
5 taxes and development fees against the property known
as the Ann Road Property. RCS proposed to sell this
6 property under § 363 and use the proceeds to pay the
City with the remainder used to pay other allowed
7 unsecured claims (other than ABC) under the plan.4
8 Class 2 - Hill Crest Bank Secured Claim: RCS owned
two parcels known as the Valley View and Simmons
9 properties which were encumbered by liens in favor of
Hill Crest Bank. Because the loans were nonrecourse
10 and the value of the properties was less than the
liens, RCS would surrender those properties to Hill
11 Crest Bank.
12 Class 3(A) - General Unsecured Claims (other than ABC
and Ken Krynski): These claims would be paid in full
13 with (1) excess proceeds from the Ann Road Property;
(2) through RCS’ 50% profit participation in the
14 Russell Road Property; and (3) any monies RCS
collected from ABC. RCS anticipated that the claims
15
16
3
RCS owned a 50% profit interest in property located at
17 2488 East Russell Road. Once the Russell Road Property was sold,
Debtors would use RCS’s share of the proceeds (approximately
18
$800,000-$1,000,000) to pay off general unsecured claims, except
19 the debt owed to ABC. The Russell Road Property was in escrow
prior to confirmation of Debtors’ plan with a scheduled closing
20 in December 2012.
21 4
On July 9, 2012, RCS moved for authorization to sell the
Ann Road Property for $500,000. On July 27, 2012, RCS filed an
22
amended motion to sell the property. ABC objected to the motion
23 due to the automatic stay imposed in its chapter 15 proceeding.
However, ABC consented to the sale if the proceeds were held in a
24 segregated account and not distributed until ABC’s interest in
the Ann Road Property was determined by a final and non-
25 appealable order. On August 20, 2012, the bankruptcy overruled
26 ABC’s objection and allowed the property to be sold by order
entered on August 24, 2012 without the conditions consented to by
27 ABC. The proceeds were used to pay off the City of North Las
Vegas, and the remaining proceeds were designated for unsecured
28 creditors other than ABC.
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1 in this class would be no greater than $925,000.
2 Class 3(B) - ABC Claims: RCS proposed to pay ABC the
full amount of its claim with its setoff, which
3 allowed for 100% payment.
4 Class 3(C) - Ken Krynski Claim: RCS disputed
Krynski’s claim filed in the amount of $2 million.
5 RCS believed that the claim was no more than $500,000.
RCS would make payments to Krynski on the Effective
6 Date in an amount determined by the court necessary to
cure any default(s) on the payment plan due Krynski
7 pursuant to the settlement agreement dated August 15,
2011. Any payments made after the Effective Date
8 would be made in accordance with the settlement
agreement.
9
Administrative Claims: All amounts would be paid in
10 full within thirty (30) days of confirmation subject
to allowance by the bankruptcy court.
11
Class 5 - Interests of Members: No distributions
12 would be made to members until after payments to all
other creditors.
13
14 Finally, the plan provided for mutual releases in
15 connection with ABC’s claim and for substantive consolidation of
16 Debtors’ estates.
17 On August 14, 2012, ABC objected to the confirmation of
18 Debtors’ plan on several grounds.5 First, citing Sherman v.
19 Harbin (In re Harbin), 486 F.3d 510, 517 (9th Cir. 2007), ABC
20 argued that the plan did not meet the feasibility requirement
21 under § 1129(a)(11) because it made no provision for the
22 possibility that ABC would prevail on appeal of the RCS MSJ
23 order and, thereafter, obtain a judgment against Debtors that
24 was not subject to setoff. Second, ABC asserted that the plan
25 provided for property sales that were “forbidden by law” in
26
5
27 The Official Committee of Unsecured Creditors and Krynski
also objected to the plan. However, those objections were either
28 resolved or withdrawn.
-5-
1 violation of § 1129(a)(3). ABC maintained that the automatic
2 stay in its chapter 15 case, coupled with the Delaware
3 bankruptcy court’s enforcement of the stay against RCS through
4 various orders, prohibited the property sales called for by the
5 plan.6
6 The bankruptcy court heard the matter on October 10, 2012
7 and overruled ABC’s objections, except for those related to the
8 purported violations of § 1129(a)(3) (forbidden by law) and
9 § 1129(a)(11) (feasibility). These objections were continued
10 for an evidentiary hearing on November 13, 2012.
11 On October 22, 2012, Debtors submitted the Fifth Amendment
12 to Plan of Reorganization. The plan was amended as result of
13 the hearing on October 10, 2012.
14 At the November 13, 2012, evidentiary hearing, Debtors’
15 sole witness was Rick Sodja, a member of RCS. ABC produced no
16 witnesses. After hearing Sodja’s testimony and the parties’
17 arguments, the bankruptcy court overruled ABC’s remaining
18 objections and confirmed the plan. The bankruptcy court found
19 that the sale of the properties did not run afoul of the
20 automatic stay imposed in ABC’s chapter 15 case nor violate the
21 Delaware bankruptcy court’s orders which enforced the stay
22 against RCS with respect to the properties. The court reasoned
23
6
24 ABC made numerous other objections that are not relevant
for purposes of this appeal. For example, ABC objected to the
25 plan provision which made its claims against Debtors subject to a
26 mutual release; asserted that the plan falsely classified its
claim as unimpaired; accused Debtors of gerrymandering because
27 the plan classified ABC separately from other unsecured claims;
and argued that the plan improperly called for the substantive
28 consolidation of Debtors’ estates.
-6-
1 that neither of the orders made any determination with respect
2 to ABC’s rights or interests in the properties. Since the RCS
3 bankruptcy court had determined ABC had no rights or interests
4 in the properties, the court found that the plan complied with
5 § 1129(a)(3).
6 Next, the bankruptcy court addressed ABC’s feasibility
7 objection based on the holding in Harbin. The court explained
8 that the holding in Harbin simply required the court, rather
9 than the plan, to consider what might happen on appeal and that
10 requirement was among all the facts and circumstances the court
11 needs to consider in determining feasibility. The court
12 concluded that based on the evidence presented, the plan was not
13 likely to need any further liquidation or financial
14 reorganization for two reasons: First, the court did not think
15 that ABC was going to prevail on appeal. Second, even if ABC
16 did prevail, the court found no evidence that suggested after a
17 trial on the merits that ABC’s claim would not be subject to
18 setoff or that it was likely ABC would wind up with a net claim
19 so large that Debtors would have to liquidate or engage in
20 further financial reorganization. The bankruptcy court
21 concluded that Debtors presented a “good case” that further
22 liquidation or financial reorganization was not likely. For
23 these reasons, the court found that Debtors met their burden of
24 proof on feasibility under § 1129(a)(11).7 The bankruptcy court
25
26 7
At this hearing, the bankruptcy court also ruled that the
27 mutual release provision should be deleted, substantive
consolidation was inappropriate, and that the plan was proposed
28 in good faith.
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1 entered the order confirming the plan on November 29, 2012.
2 On December 4, 2012, ABC filed a timely notice of appeal
3 from the confirmation order. On the same day, ABC filed an
4 emergency motion for a stay pending appeal and an emergency
5 motion for an expedited hearing on the motion. At the
6 December 11, 2012 expedited hearing on the matter, the
7 bankruptcy court denied ABC’s motion for stay pending appeal.
8 On December 17, 2012, Debtors filed a Notice of Effective
9 Date which stated that the Effective Date of the confirmed plan
10 was December 14, 2012. In the notice, Debtors represented that
11 payments were made to Krynski in the amount of $535,000 and that
12 other payments were being made pursuant to the confirmed plan of
13 reorganization.
14 After the bankruptcy court denied ABC’s motion for a stay
15 pending appeal, ABC filed a motion for a stay of the
16 confirmation order with the Panel. On December 21, 2012, the
17 Panel entered an order staying distributions under the plan
18 pending resolution of this appeal. RCS moved for
19 reconsideration. After reviewing the bankruptcy court’s reasons
20 for denying a stay, the Panel concluded that the lack of
21 likelihood of success on the merits justified revisiting its
22 original order granting the requested stay. The Panel granted
23 RCS’s motion for reconsideration and vacated the stay by order
24 entered on February 2, 2013.
25 II. JURISDICTION
26 Because the plan has been confirmed, distributions
27 commenced, properties sold, and there is no stay pending appeal
28 of the confirmation order, the question arises whether this
-8-
1 appeal is moot and subject to dismissal. If an appeal is moot,
2 we must dismiss if constitutionally moot, Drummond v. Urban
3 (In re Urban), 375 B.R. 882, 887 (9th Cir. BAP 2007), and we may
4 dismiss if equitably moot. Clear Channel Outdoor, Inc. v.
5 Knupfer (In re PW, LLC), 391 B.R. 25, 33–35 (9th Cir. BAP 2008).
6 We consider the mootness question below and conclude that the
7 appeal is not constitutionally or equitably moot.
8 The bankruptcy court had jurisdiction over this proceeding
9 under 28 U.S.C. §§ 1334 and 157(b)(2)(L). We have jurisdiction
10 under 28 U.S.C. § 158.
11 III. ISSUES
12 A. Whether ABC’s appeal from the bankruptcy court’s order
13 confirming Debtors’ chapter 11 plan is moot;
14 B. Whether the bankruptcy court erred in finding that
15 Debtors’ plan was not forbidden by law and complied with
16 § 1129(a)(3); and
17 C. Whether the bankruptcy court erred in finding that
18 Debtors’ plan satisfied the feasibility requirements under
19 § 1129(a)(11).
20 IV. STANDARDS OF REVIEW
21 “Mootness is a question of law reviewed de novo.” Nelson
22 v. George Wong Pension Trust (In re Nelson), 391 B.R. 437, 442
23 (9th Cir. BAP 2008).
24 The issue of whether the plan was proposed “by any means
25 forbidden by law” is a question of law which we also review de
26 novo. Settling States v. Carolina Tobacco Co. (In re Carolina
27 Tobacco Co.), 360 B.R. 702, 711 (D. Or. 2007). In connection
28 with our inquiry into whether Debtors’ plan was proposed “by any
-9-
1 means forbidden by law,” we are called upon to interpret the
2 stay enforcement orders issued by the Delaware bankruptcy court.
3 The interpretation of a court order is a legal conclusion to be
4 reviewed de novo. See U.S. v. Spallone, 399 F.3d 415, 423 (2d
5 Cir. 2005) (“The interpretation of the text of [another court’s]
6 order or judgment is considered a conclusion of law subject to
7 de novo review.”).
8 “The issue whether a plan is feasible-is not likely to be
9 followed by liquidation or further reorganization-is one of
10 fact, which we review under the clearly erroneous standard.”
11 In re Harbin, 486 F.3d at 517. We affirm the bankruptcy court’s
12 factual findings unless those findings are “(1) ‘illogical,’
13 (2) ‘implausible,’ or (3) without ‘support in inferences that
14 may be drawn from the facts in the record.’” United States v.
15 Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc).
16 Where there are two plausible views of the evidence, “the
17 factfinder’s choice between them cannot be clearly erroneous.”
18 Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574
19 (1985).
20 V. DISCUSSION
21 A. Mootness
22 Both RCS and ABC address the mootness issue in their
23 briefs, albeit in an abbreviated manner. On the one hand, ABC
24 contends that this appeal is not moot because the Panel granted
25 ABC’s request for a stay pending appeal. However that order has
26 since been vacated. On the other hand, without legal analysis
27 or support, RCS suggests that this appeal would become moot once
28 we affirmed the bankruptcy court’s summary judgment order in the
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1 related appeal, BAP No. AZ-12-1381-JuTaAh. Although we have
2 affirmed the bankruptcy court’s orders on the cross motions for
3 summary judgment on the setoff issue, we disagree that our
4 decision rendered this appeal moot.8
5 We have an independent obligation to consider mootness sua
6 sponte, Felton Pilate v. Burrell (In re Burrell), 415 F.3d 994,
7 997 (9th Cir. 2005), because we lack jurisdiction, Urban, 375
8 B.R. at 887, or it may be the case that any remedy may be unjust
9 given the change in position of third parties, Clear Channel,
10 391 B.R. at 33–35. “The test for mootness of an appeal is
11 whether the appellate court can give the appellant any effective
12 relief in the event that it decide the matter on the merits in
13 his favor. If it can grant such relief, the matter is not
14 moot.” In re Burrell, 415 F.3d at 998. We conclude that this
15 appeal is not constitutionally moot because we could reverse
16 plan confirmation or require modification of the plan, thereby
17 giving relief to ABC.
18 The equitable mootness question requires more analysis due
19 to the Ninth Circuit’s “comprehensive test” for determining
20 whether an appeal is equitably moot:
21 We will look first at whether a stay was sought, for
absent that a party has not fully pursued its rights.
22 If a stay was sought and not gained, we then will look
to whether substantial consummation of the plan has
23 occurred. Next, we will look to the effect a remedy
may have on third parties not before the court.
24 Finally, we will look at whether the bankruptcy court
can fashion effective and equitable relief without
25 completely knocking the props out from under the plan
and thereby creating an uncontrollable situation for
26
27
8
We also must acknowledge that our ruling may not be the
28 final order on that issue, as ABC has further appeal rights.
-11-
1 the bankruptcy court.
2 Motor Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe
3 Insulation Co.), 677 F.3d 869, 881 (9th Cir. 2012). In applying
4 these factors to this case, we ultimately decline to dismiss
5 this appeal on equitable mootness grounds.
6 First, ABC was diligent in seeking a stay from the
7 bankruptcy court and this Panel, which both refused. “[F]ailure
8 to obtain a stay is one factor to be considered in assessing
9 equitable mootness, but is not necessarily controlling.” Id. at
10 881-82. Second, because a stay was sought and not gained, we
11 next determine whether substantial consummation of the plan has
12 occurred. “The Bankruptcy Code defines substantial consummation
13 as: (a) transfer of all or substantially all of the property
14 proposed by the plan to be transferred; (b) assumption by the
15 debtor or by the successor to the debtor under the plan of the
16 business or of the management of all or substantially all of the
17 property dealt with by the plan; and (c) commencement of
18 distribution under the plan.” Id. (citing § 1101(2)).
19 RCS states that it no longer has any property that was
20 subject to the lis pendens as the properties have all been sold
21 and most of the proceeds have been used to pay RCS’s creditors.
22 Sodja’s testimony at the evidentiary hearing on plan
23 confirmation corroborates RCS’s statement. As noted above, the
24 Ann Road Property was sold over ABC’s objection pursuant to a
25 court order prior to the confirmation of Debtors’ plan. Sodja
26 testified that two of the properties RCS owned would be returned
27 to Hill Crest Bank because the debt exceeded the potential value
28 of the properties. Finally, Sodja testified that the closing
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1 for the Russell Road Property was to occur prior to the end of
2 the year [2012]. Hence, the first requirement for substantial
3 consummation has been met because there has been a transfer of
4 all the real property dealt with by the plan.
5 Paragraph 7.1 of the plan provides that, as of the
6 Effective Date, the management, control, and operation of the
7 Reorganized Debtor[s] became the general responsibility of the
8 Managing Member of the Reorganized Debtor[s], “which shall,
9 thereafter have the responsibility for the management, control
10 and operation of the Reorganized Debtor[s].” Therefore, the
11 second requirement for substantial consummation of the plan has
12 been met.
13 Finally, distributions under the plan have commenced. The
14 Notice of Effective Date filed by Debtors plainly states that
15 Krynski was paid $525,000 and other distributions had commenced.
16 Accordingly, the plan has been substantially consummated.
17 Even though the plan has been substantially consummated,
18 that is not the “end of the story.” In re Thorpe Insulation
19 Co., 677 F.3d at 882 n.7. We can “still assess whether
20 effective relief might be given without fully impairing the
21 prior plan and other pertinent circumstances.” Id. We, thus,
22 consider “whether modification of the plan of reorganization
23 would bear unduly on the innocent.” Id. at 882.
24 There is no doubt that the plan has proceeded and third
25 party rights have intervened. Properties were sold to third
26 parties who are not presently before the court. Under these
27 circumstances, it would be inequitable to alter the plan so far
28 as the sale of the properties is concerned because parties who
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1 relied on the plan are not before us.
2 We last consider whether the bankruptcy court on remand may
3 be able to devise an equitable remedy. “Where equitable relief,
4 though incomplete, is available, the appeal is not moot.” Id.5 at 883. Here, RCS’s remaining asset is its judgment against
6 ABC. Therefore, complete reversal of the plan will not likely
7 provide a remedy for ABC. However, RCS admits that some
8 residual amount remains in its estate. Moreover, if ABC’s
9 claims are determined to be valid, then it may be entitled to
10 recover monies RCS paid to Krynski, who was the sole member of
11 ACCP, which had obtained the loans from ABC. While
12 theoretically Krynski may not have the money, we conclude this
13 possibility does not make this appeal equitably moot. We
14 therefore consider the merits.
15 B. The Merits
16 Debtors had the burden of proving all the elements
17 governing plan confirmation. Leavitt v. Soto (In re Leavitt),
18 209 B.R. 935, 940 (9th Cir. BAP 1997), aff’d, 171 F.3d 1219 (9th
19 Cir. 1999). The requirements for plan confirmation are listed
20 in § 1129(a) (stating that the court shall confirm a plan only
21 if all the following requirements have been met). Sections
22 1129(a)(3) and (11) are at issue in this appeal.
23 Section 1129(a)(3): Forbidden by Law
24 Section 1129(a)(3) requires the bankruptcy court to decide
25 whether the “plan has been proposed in good faith and not by any
26 means forbidden by law.” ABC contends that Debtors’ plan runs
27 afoul of this section because properties will be sold that are
28 subject to stay enforcement orders issued by the Delaware
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1 bankruptcy court. ABC argues that these orders, which enforced
2 the automatic stay in ABC’s chapter 15 case against RCS,
3 demonstrate that ABC has a protectable interest in the
4 properties. Thus, according to ABC, the confirmation order
5 authorizing the sale of the properties constitutes an
6 impermissible collateral attack on the Delaware bankruptcy
7 court’s orders.
8 In the first order ABC relies upon, the Delaware bankruptcy
9 court found that RCS’s sale of properties subject to ABC’s lis
10 pendens was a willful violation of the automatic stay.9 ABC’s
11 argument that this order somehow prohibited the sale of the
12 properties through the confirmed plan stems from a faulty
13 premise; i.e., that the Delaware bankruptcy court’s enforcement
14 of the stay against RCS means that the court found ABC had a
15 constructive trust over the properties, creating a right to the
16 protection of the stay. The order does not say that.
17 “Court orders are construed like other written instruments,
18 except that the determining factor is not the intent of parties,
19
20
9
Recall that ABC recorded the lis pendens against the ACCP
21 properties concurrent with the commencement of the Nevada lawsuit
against Debtors and others. RCS filed a motion to expunge the
22
lis pendens which the Nevada court denied in an order dated
23 September 10, 2009, finding: (1) the constructive trust claim
affected the title or possession of the properties; (2) ABC
24 Learning would be injured by a transfer of an interest in the
properties before the Nevada Action was concluded; and (3) ABC
25 Learning established that it was likely to prevail on the merits
26 of the constructive trust claim. See In re ABC Learning Centres
Ltd., 2011 WL 4899789, at *2 (setting forth what happened in the
27 Nevada court). After the Nevada district court denied RCS’s
motion to expunge, RCS sold three properties that were subject to
28 the lis pendens. Id.-15-
1 but that of the issuing court.” Spallone, 399 F.3d at 424.
2 “[A]n order will not be construed as going beyond the motion in
3 pursuance of which the order was made, for a court is presumed
4 not to intend to grant relief which was not demanded.” Id.5 The plain language of the order shows that the Delaware
6 bankruptcy court found RCS violated the stay based on its
7 inquiry into whether ABC had “arguable claims of right to the
8 properties, or a colorable basis for asserting an interest in
9 the properties.” In re ABC Learning Centres Ltd., 2011 WL
10 4899789, at *2. The court’s order further shows that ABC’s
11 filing of the lis pendens established the colorable claim:
12 “Filing the Lis Pendens and the Nevada Court’s Lis Pendens Order
13 established a colorable claim of title.” Id. Finally, the
14 Delaware bankruptcy court did not find that ABC had rights to
15 the properties by virtue of its constructive trust claim. “It
16 is not necessary at this stage that [ABC] establish an ownership
17 interest in or title to the property and the bankruptcy court
18 need not make that determination at the outset for the automatic
19 stay to apply. The Nevada Court will make that determination
20 . . . If the Nevada court finds that [ABC] had a constructive
21 trust, that will vest title of rights in [ABC].” Id. at *3.
22 We do not construe the Arizona bankruptcy court’s
23 confirmation order as a collateral attack on this order. “The
24 collateral attack doctrine precludes litigants from collaterally
25 attacking the judgments of other courts.” Rein v. Providian
26 Fin. Corp., 270 F.3d 895, 902 (9th Cir. 2001). In order to be
27 an impermissible collateral attack of an earlier judgment, the
28 relevant claims must have been directly ruled on in the prior
-16-
1 proceeding. See Skokomish Indian Tribe v. United States,
2 332 F.3d 551, 560 (9th Cir. 2003). Here, although the Delaware
3 bankruptcy court enforced the automatic stay against RCS, the
4 basis for its doing so was the filing of the lis pendens. The
5 order does not establish that ABC had any other colorable basis
6 for asserting an interest in the properties. As noted by the
7 bankruptcy court, no court has ever ruled on ABC’s constructive
8 trust claim. Accordingly, the collateral attack doctrine does
9 not apply.
10 It follows that once the Arizona bankruptcy court quashed
11 the lis pendens due to its findings that there was a de facto
12 merger between RCS and ACCP, the sale of the properties through
13 a confirmed plan could not run afoul of the Delaware bankruptcy
14 court’s order, or for that matter, the imposition of the stay in
15 ABC’s chapter 15.
16 The second order ABC relies upon is the Delaware bankruptcy
17 court’s denial of RCS’s motion to vacate the order imposing the
18 stay in ABC’s chapter 15 and the order finding RCS had committed
19 a willful violation of the stay even though the Delaware court
20 knew that the Arizona bankruptcy court had granted RCS’s MSJ and
21 quashed the lis pendens on the properties. The plan also does
22 not violate the law because of this denial order. Again, the
23 plain language of the order only refers to the now-dissolved lis
24 pendens as the colorable basis for ABC’s alleged interest in the
25 properties. In sum, we conclude that the bankruptcy court did
26 not err by finding that Debtors’ plan complied with
27 § 1129(a)(3).
28
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1 Section 1129(a)(11): Feasibility
2 Section 1129(a)(11) requires the court to confirm a plan
3 when “[c]onfirmation of the plan is not likely to be followed by
4 liquidation, or the need for further financial reorganization,
5 of the debtor or any successor to the debtor under the plan,
6 unless such liquidation or reorganization is proposed in the
7 plan.”
8 ABC argues that the bankruptcy court erred in its finding
9 of feasibility because it did not follow a bright-line rule set
10 forth in Harbin, which ABC recites as follows: a plan is not
11 feasible if it does not provide a mechanism for addressing the
12 claims of creditors who may subsequently recover large judgments
13 against the debtor. However, this is neither a rule nor the
14 holding set forth in Harbin. The opinion begins: “[W]e hold
15 that a bankruptcy court considering the feasibility of a plan of
16 reorganization under 11 U.S.C. § 1129(a)(11) must evaluate the
17 possible effect of a debtor’s ongoing civil case with a
18 potential creditor, whether that litigation is pending at the
19 trial level or on appeal.” In re Harbin, 486 F.3d at 514.
20 Nowhere do we find in the opinion a “bright-line” rule that
21 requires a plan to provide a mechanism for addressing the claims
22 of creditors who may subsequently recover large judgments
23 against the debtor.
24 Moreover, in Harbin the bankruptcy court erroneously
25 concluded that it could not consider the effect of the
26 creditor’s pending appeal for several reasons, including the
27 Rooker-Feldman doctrine. All these reasons were rejected by the
28 Ninth Circuit. This case differs. The bankruptcy court
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1 properly noted, “what might happen on appeal is among the facts
2 and circumstances the court needs to consider in determining
3 feasibility.” The court then considered the effect of ABC’s
4 appeal on the feasibility of Debtors’ plan by taking evidence on
5 whether ABC would prevail in the appeal of the RCS MSJ order,
6 but “it heard no evidence to that effect.”
7 Because feasibility is a finding of fact, ABC has the
8 burden to demonstrate that the bankruptcy court’s findings of
9 fact are clearly erroneous. Wells Fargo Bank, N.A. v. Loop 76,
10 LLC (In re Loop 76, LLC), 465 B.R. 525, 545 (9th Cir. BAP 2012).
11 To show clear error, ABC must demonstrate how the findings were
12 not supported by the record (i.e., the testimony and evidence
13 upon which the court relied in issuing its ruling). ABC
14 contends that it does not need to show clear error because the
15 bankruptcy court misapplied the law when it found ABC was
16 unlikely to prevail in the summary judgment appeal. In
17 addition, ABC argues that the RCS MSJ will be reviewed de novo
18 on appeal. Therefore, ABC maintains that the bankruptcy court’s
19 decision that it was “unlikely to prevail on appeal” should be
20 governed under a de novo review standard. We now have affirmed
21 the bankruptcy court’s orders on the parties’ cross motions for
22 summary judgment. Therefore, even under a de novo review, ABC
23 has not shown that it was likely to prevail on appeal.
24 In short, ABC failed to show a reasonable possibility that
25 its claim could affect the plan’s feasibility in the future;
26 i.e., that the plan was likely to be followed by liquidation, or
27 the need for further financial reorganization. Accordingly, we
28 discern no error with the bankruptcy court’s conclusion that the
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1 plan met the requirements for feasibility under § 1129(a)(11).10
2 VI. CONCLUSION
3 For the reasons stated, we AFFIRM.
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ABC devotes a significant portion of its brief to
27 arguments raised and briefed in the related appeal on the cross
summary judgment motions. We do not revisit these arguments in
28 the context of this appeal.
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