Greenberg v. Champion Mortgage Company ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 IN RE ENRIQUE V. GREENBERG, Case No.: 20-cv-01532-GPC-MDD Bankruptcy No. 19-00878-MM11 12 Debtor, 13 ORDER DENYING APPELLANT’S MOTION TO STAY 14 15 [ECF No. 3] 16 17 ENRIQUE V. GREENBERG, 18 Appellant, 19 v. 20 CHAMPION MORTGAGE COMPANY, 21 Appellee. 22 23 24 25 26 27 28 1 In this case, Appellant Enrique V. Greenberg (“Appellant”) appeals an order of the 2 U.S. Bankruptcy Court dismissing his Chapter 11 bankruptcy case. ECF No. 1. On 3 August 11, 2020, Appellant filed an Emergency Motion to Stay Dismissal of the Case, 4 Reinstate the Case, and Reinstate the Automatic Stay Pending Appeal (“Motion”). ECF 5 No. 3. On August 17, 2020, Appellee Champion Mortgage Company (“Appellee”) filed 6 a response in opposition to the Motion.1 ECF No. 4. The Court finds this motion suitable 7 for decision without oral argument pursuant to Civ. L.R. 7.1(d)(1). 8 For the reasons below, the Court DENIES Appellant’s Motion. 9 I. Background 10 The bankruptcy appeal in this case arises out of proceedings in the Chapter 11 11 bankruptcy case filed on February 20, 2020, Appellant’s fourth bankruptcy case in the 12 Southern District of California.2 ECF No. 4-9 at 5; Bk. No. 19-00878-MM11. Appellant 13 listed Appellee as the only secured creditor in the case. ECF No. 4-9 at 5. Appellee 14 holds a claim fully secured by Appellant’s property located in Temecula, California, 15 (“Property”), which is his principal residence. Id. The Property formerly belonged to 16 Appellant’s mother, Antonia Cortes (“Cortes”), who was the borrower and sole signer of 17 the adjustable rate note and deed of trust that granted Appellee its security interest in the 18 Property. Id. The note provided a reverse mortgage to Cortes and provided that “[a]ll 19 amounts advanced by Lender, plus interest, if not paid earlier, are due and payable on 20 January 17, 2087.” ECF No. 4-1 at 6. The note alternatively required immediate 21 payment in full upon the occurrence of a specified event, including if “A Borrower dies 22 and the Property is not the principal residence of at least one surviving Borrower.” ECF 23 24 25 26 1 On September 10, 2020, Appellant attempted to file a reply beyond the deadline set by the Court, ECF No. 5, without seeking leave for an extension of time to reply. ECF No. 13. Accordingly, the Court 27 does not consider Appellant’s belated reply brief in deciding this motion. 2 Appellant has also previously filed for bankruptcy in the Central District of California. See Bk. No. 13- 28 1 No. 4-1 at 8. On December 29, 2010, Cortes passed away, leaving no other borrowers. 2 ECF No. 4-9 at 5; ECF No. 4-1 at 11. 3 Appellee filed a proof of claim in Appellant’s bankruptcy case, to which Appellant 4 objected. ECF No. 4-9 at 5. The bankruptcy court overruled that objection, and 5 Appellant appealed that decision to this Court. See Case No. 3:20-cv-506-GPC-MDD. 6 Proceedings continued in the bankruptcy court. On April 28, 2020, Appellant filed his 7 motion to approve the Fourth Amended Individual Chapter 11 Combined Plan of 8 Reorganization and Disclosure Statement (“Plan”), to which Appellee objected. ECF No. 9 4-3; ECF No. 4-9 at 6. The Plan did not provide for repayment of Appellee’s loan on the 10 effective date of the Plan, but rather repayment at a variable interest rate over the course 11 of 30 years. See ECF No. 4-3. On May 26, 2020, Appellee filed a motion to dismiss 12 Appellant’s bankruptcy case. ECF No. 4-8. On August 6, 2020, the bankruptcy court 13 granted Appellee’s motion to dismiss. Id. On August 7, 2020, Appellant appealed to this 14 Court. ECF No. 1. 15 On August 7, 2020, Appellant filed an emergency motion with the bankruptcy 16 court to (1) stay the order of dismissal in the case, (2) reinstate the case, and (3) reinstate 17 the automatic stay pending appeal. ECF No. 3, Ex. 1. The bankruptcy court denied 18 Appellant’s motion. Id., Ex. 2 at 39. On August 11, 2020, Appellant filed the instant 19 Motion with this Court. Id. In his Motion, Appellant seeks an order staying the dismissal 20 order in his underlying bankruptcy case, reinstating the bankruptcy case, and reinstating 21 the automatic stay pending appeal of his bankruptcy case, on the grounds that he has a 22 substantial case for relief on the merits and that absent a stay he would have little or no 23 time to protect his interest in the property by means of refinancing or selling to pay off 24 Appellee. Id. at 3–4. 25 II. Legal Standard 26 In determining whether to grant a stay pending appeal, a court must consider (1) 27 whether the movant has made a “strong showing that he is likely to succeed on the 28 merits;” (2) whether the movant will suffer irreparable injury absent a stay; (3) whether a 1 stay would result in substantial harm to non-moving parties; and (4) whether a stay is in 2 the public interest. Nken v. Holder, 556 U.S. 418, 426 (2009); see also In re North Plaza, 3 LLC, 395 B.R. 113, 119 (S.D. Cal. 2008). The Federal Rules of Bankruptcy Procedure 4 provide that a movant must ordinarily first apply to the bankruptcy court for a stay 5 pending appeal. Fed. R. Bankr. P. § 8007(a)(1)(A). When the bankruptcy court denies 6 the motion, the appellate court typically reviews that denial for abuse of discretion. In re 7 Wymer, 5 B.R. 802, 807 (B.A.P. 9th Cir. 1980). 8 III. Discussion 9 A. Likelihood of Success on the Merits 10 Appellant argues that he has made a substantial case for relief on the merits, 11 asserting that the bankruptcy court made several errors that merit reversal of its dismissal 12 of his bankruptcy case. ECF No. 3 at 4. Appellee argues that Appellant’s assertions of 13 error in the decision dismissing his bankruptcy case are unfounded and do not undermine 14 the multiple grounds for dismissal cited in the bankruptcy court’s order. ECF No. 4 at 15 10. 16 In order to succeed on his appeal of the dismissal of his bankruptcy case, Appellant 17 would need to show that the dismissal was based on an error of law or a clearly erroneous 18 factual determination. See In re Contractors Equip. Supply Co., 861 F.2d 241, 243 (9th 19 Cir. 1988). The bankruptcy court dismissed Appellant’s bankruptcy case on the grounds 20 that Appellant filed the bankruptcy case in bad faith, that the bankruptcy estate suffered 21 losses unlikely to be rehabilitated, and that dismissal was in the best interests of the 22 creditor. ECF No. 4-9 at 3, 7–10. Appellant argues this decision was erroneous because 23 the Plan did not involve an impermissible impairment or modification of Appellant’s 24 claim and thus should have been confirmed over Appellee’s objection. ECF No. 3 at 11. 25 A bankruptcy case can be dismissed if the debtor did not file the case in good faith 26 for a proper bankruptcy purpose. In re Marsch, 36 F.3d 825, 828 (9th Cir. 1994). The 27 fact that a debtor filed a bankruptcy case merely as a litigation tactic to stay other 28 proceeding can constitute cause for dismissal. Id. (citing In re Wally Findlay Galleries 1 (New York), Inc., 36 Bankr. 849, 851 (Bankr. S.D.N.Y. 1984)). “Dismissal for a lack of 2 good faith in filing is a matter for the bankruptcy court’s discretion.” In re Stolrow’s, 3 Inc., 84 B.R. 167, 170 (B.A.P. 9th Cir. 1988). “[T]he question of good faith is factual 4 and [the appellate court] review[s] for clear error.” In re Marshall, 721 F.3d 1032, 1046 5 (9th Cir. 2013) (quoting id.) (internal quotation marks omitted). 6 The Bankruptcy Appellate Panel of the Ninth Circuit in In re Stolrow’s laid out 7 several factors to consider when determining if a debtor filed the bankruptcy case in bad 8 faith. “[T]he factors which are usually present in cases not filed in good faith and which 9 may be considered in a motion to dismiss for cause” include: 10 (1) The debtor has only one asset. (2) The secured creditors’ lien encumbers that asset. 11 (3) There are generally no employees except for the principals. 12 (4) There is little or no cash flow, and no available sources of income to sustain a plan of reorganization or to make adequate protection payments. 13 (5) There are few, if any, unsecured creditors whose claims are relatively small. 14 (6) There are allegations of wrongdoing by the debtor or its principals. (7) The debtor is afflicted with the “new debtor syndrome” in which a one-asset 15 equity has been created or revitalized on the eve of foreclosure to isolate the 16 insolvent property and its creditors. (8) Bankruptcy offers the only possibility of forestalling loss of the property. 17 18 In re Stolrow’s, Inc., 84 B.R. at 171. In dismissing Appellant’s case, the 19 bankruptcy court found that Appellant’s main asset was the Property, which is 20 encumbered by Appellee’s lien. ECF No. 4-9 at 9. The bankruptcy court also found that 21 Appellant lacked available sources of income to sustain a confirmable plan of 22 reorganization, which would necessarily entail paying Appellee in full, and that 23 bankruptcy would be the only possibility to stop foreclosure of the property. Id. The 24 court also noted that the present case was Appellant’s fifth unsuccessful bankruptcy 25 filing. Id. 26 Appellant does not challenge most of these findings in his Motion. Instead, 27 Appellant’s arguments on appeal mainly challenge the bankruptcy court’s findings that 28 Appellant’s plan could not be confirmed and that any plan would require payment of the 1 debt in full plus interest to Appellee, which underlie the bankruptcy court’s analysis of 2 the grounds for dismissal. ECF No. 3 at 5. A plan can only be confirmed without 3 creditor consent if it does not impair the creditor’s rights. 11 U.S.C. 1126(a), (f). “For a 4 debtor to render . . . a creditor [otherwise entitled to accelerated payment] ‘unimpaired’ 5 and unable to object to the debtor’s plan, the debtor must cure the default but may not 6 ‘otherwise alter the legal, equitable, or contractual rights’ of the creditor.” In re New 7 Invs., Inc., 840 F.3d 1137, 1142 (9th Cir. 2016) (citations omitted). Further, 11 U.S.C. § 8 1123(b)(5) provides that a Chapter 11 plan may not modify “a claim secured only by a 9 security interest in real property that is the debtor’s principal residence.” 11 U.S.C. § 10 1123(b)(5). 11 Here, Appellant cannot fulfill the obligations of the underlying loan agreement 12 absent payment in full by the Plan’s effective date because the event triggering the 13 immediate payment provision—Cortes’s death—is irreversible. 11 U.S.C. § 1123(d). 14 “Reinstatement” of the January 17, 2087 maturity date would impair Appellee’s rights 15 because the loan agreement provided that Appellee had an immediate right to repayment 16 upon Cortes’s death—her death being “the time originally contemplated by the parties to 17 the contract” for payment of the debt. ECF No. 4-1 at 4; In re Seidel, 752 F.2d 1382, 18 1384 (9th Cir. 1985). The Plan’s extended payment schedule thus would be an 19 impermissible modification rather than a cure. The cases cited by Appellant do not 20 support his argument. Several involve bankruptcy cases brought under Chapter 13 rather 21 than Chapter 11. E.g., In re Nelson, 59 B.R. 417, 420 (B.A.P. 9th Cir. 1985); In re Keita, 22 No. 12-19970-PM, 2013 WL 1788033 (Bankr. D. Md. Apr. 26, 2013). Chapter 13 plans, 23 unlike Chapter 11 plans, may modify a loan secured by the debtor’s principal residence 24 by extending the repayment schedule. In re Crump, 529 B.R. 106, 112 (Bankr. D.S.C. 25 2015); 11 U.S.C. § 1322(c)(2). Other cases cited by Appellant, though brought under 26 Chapter 11, do not involve reverse mortgages, a loan arrangement in which the creditor 27 expects to be paid in full upon the death of the borrower. E.g., Matter of Madison Hotel 28 Assocs., 749 F.2d 410, 418 (7th Cir. 1984); In re Hewitt, 16 B.R. 973 (Bankr. D. Alaska 1 1982); In re Lennington, 288 B.R. 802, 806 (Bankr. C.D. Ill. 2003); In re LaPorta, 578 2 B.R. 792, 793 (Bankr. N.D. Ill. 2017). In those cases, the courts found that the creditors’ 3 rights would not be impaired because the plans of reorganization would essentially 4 restore the creditors to the position they were in prior to the debtors’ default, primarily by 5 paying back past due amounts and interest. See In re Hewitt, 16 B.R. at 977. But in the 6 case of a reverse mortgage like the one at issue, there is no curable default once the 7 borrower dies absent a plan that provides for immediate payment. A non-borrower’s 8 resumption of loan payments is not a substitute for the creditor’s right to receive payment 9 upon the death of the borrower. The Plan does not intend to clear away a temporary 10 crisis caused by a debtor’s default, see id., but would allow Appellant to entirely 11 eliminate the provision requiring payment in full upon Cortes’s death. Appellant’s 12 proposed treatment would therefore likely modify Appellee’s rights under the loan 13 agreement and the Plan would not be confirmable over Appellee’s objection. Appellant 14 has thus failed to show that he has a substantial probability of success in demonstrating 15 that the bankruptcy court’s finding of bad faith was an abuse of discretion. 16 The bankruptcy court also found cause to dismiss Appellant’s case on the grounds 17 that there has been a “substantial or continuing loss to or diminution of the estate and [an] 18 absence of a reasonable likelihood of rehabilitation.” 11 U.S.C. § 1112(b)(4)(A); ECF 19 No. 4-9 at 9–10. The bankruptcy court found the estate was suffering continuing losses 20 because Appellant has not been making payments to Appellee. ECF No. 4-9 at 9. The 21 court further found that Appellant had not formulated a confirmable plan, and had not 22 shown a willingness to formulate a confirmable plan. Id. at 9–10. These two findings 23 show that the bankruptcy estate is experiencing losses and that Appellant has “nothing to 24 reorganize” as he has not expressed a willingness or ability to pay Appellee in full 25 through his reorganization. See In re USA Commercial Mortg. Co., 452 F. App’x 715, 26 724 (9th Cir. 2011); In re Bay Area Material Handling, Inc., 76 F.3d 384 (9th Cir. 1996). 27 The Court thus finds Appellant has not put forth a substantial case for demonstrating that 28 the bankruptcy court abused its discretion in finding this basis to dismiss. 1 Lastly, the bankruptcy court properly considered the interests of the creditors in 2 determining whether dismissal was appropriate. ECF No. 4-9 at 10; In re Sullivan, 522 3 B.R. 604, 612 (9th Cir. BAP 2014). Appellee argued that dismissal was in its best 4 interests because the bankruptcy was largely a two-party dispute and Appellant had no 5 other creditors. ECF No. 4-4 at 10. Appellant has not put forth any argument to refute 6 these contentions, but merely argues that Appellee would not be harmed by reinstatement 7 of the case. However, Appellee does continue to be harmed by its inability to pursue 8 state court remedies to collect on the note. See ECF No. 4-9 at 10. As such, the Court 9 cannot find the bankruptcy abused its discretion in determining that dismissal was 10 appropriate. 11 The Court finds that Appellant has not shown a likelihood of success on the merits 12 of his appeal. 13 B. Irreparable Injury 14 Appellant argues that he is at risk of irreparable harm in the absence of a stay 15 because he would have “little to no time to protect [his] interest in the real property by 16 means of refinancing or selling to pay off the creditor.” ECF No. 3 at 4. Appellee argues 17 that Appellant has had more than a year and a half to seek refinancing of his property and 18 pay Appellee in full. ECF No. 4 at 15. 19 The movant must establish that irreparable harm is likely absent a stay. Alliance 20 for the Rockies, 622 F.3d at 1049. In considering Appellant’s motion to stay, the 21 bankruptcy court noted that although the possibility that Appellant may lose his home 22 would be a serious injury, Appellant was seeking refinancing and thus has other options 23 to save his home. ECF No. 3, Ex. 2. The Court recognizes that the prospect of losing 24 one’s home would be irreparable injury. But Appellant has not demonstrated that he is at 25 imminent risk of losing his home, given his ability to seek refinancing, and instead only 26 raises concerns about a potential refinancing delay. ECF No. 3 at 3. The possibility of 27 irreparable harm here thus does not outweigh the Court’s finding that Appellant has 28 presented little likelihood of success on the merits of his appeal. 1 C. Harm to Non-Moving Party and Public Interest 2 Appellant argues that Appellee will not be harmed if the dismissal is stayed 3 pending appeal because there is equity in the property and there are no missed monthly 4 payments. ECF No. 3 at 3. Appellee asserts it will be substantially harmed because 5 Appellant continues to engage in bad-faith litigation across multiple cases, running up 6 costs and fees, and because the value and related equity of the property may decline. 7 ECF No. 4 at 15–16. Appellant further asserts that the public interest would be served by 8 a stay because public policy favors home ownership and protecting homeowner equity. 9 ECF No. 3 at 3. Appellee argues that the public interest favors preventing Appellant 10 from continuing to use the bankruptcy courts for an improper purpose. ECF No. 4 at 16. 11 Appellant has the burden of showing that the balance of equities, considering both 12 the interests of the opposing party and the public, tips in his favor. See Nken, 556 U.S. at 13 434. The Court recognizes that litigation related to the Property and loan has been 14 ongoing for years, and that the bankruptcy court has found that Appellant has no valid 15 bankruptcy purpose. ECF No. 4-9 at 10. The borrower on the note, Cortes, passed away 16 nearly ten years ago, and Appellee and its predecessors-in-interest have thus far been 17 unable to collect the full amount due as a result of the ongoing bankruptcy cases. The 18 Court therefore agrees with the bankruptcy court, which found that the equities weigh in 19 favor of denying a stay. ECF No. 3 at 39. 20 Thus, the Court finds that a stay would both harm Appellee and be contrary to the 21 public interest. 22 IV. Conclusion 23 Accordingly, the Court cannot find that the bankruptcy court abused its discretion 24 in denying Appellant’s motion for an emergency stay of his bankruptcy dismissal. The 25 Court likewise finds that, in view of the factors outlined above, a stay is not warranted. 26 The Court therefore DENIES Appellant’s Motion. 27 \ \ \ 28 \ \ \ 1 IT IS SO ORDERED. 2 Dated: September 23, 2020 2 3 Hon. athe Ck 4 United States District Judge 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10