In re: Charles Henry Utzman and Anna Kathryn Utzman

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: August 9, 2016
• Docket: NC-15-1331-TaJuKi
• Status: Unpublished

Opinion

FILED AUG 09 2016 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NC-15-1331-TaJuKi ) 6 CHARLES HENRY UTZMAN and ) Bk. No. 3:14-bk-31828 ANNA KATHRYN UTZMAN, ) 7 ) Debtors. ) 8 ______________________________) ) 9 CHARLES HENRY UTZMAN; ANNA ) KATHRYN UTZMAN, ) 10 ) Appellants, ) 11 ) v. ) MEMORANDUM* 12 ) SUNTRUST MORTGAGE, INC., ) 13 ) Appellee. ) 14 ______________________________) 15 Argued and Submitted on July 28, 2016 at San Francisco, California 16 Filed – August 9, 2016 17 Appeal from the United States Bankruptcy Court 18 for the Northern District of California 19 Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding 20 Appearances: David N. Chandler, Jr. argued for Appellants; 21 Dennis Peter Maio of Reed Smith LLP argued for Appellee. 22 23 Before: TAYLOR, JURY, and KIRSCHER, Bankruptcy Judges. 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 8024-1(c)(2). 1 INTRODUCTION 2 Chapter 111 debtors Charles Henry Utzman and Anna Kathryn 3 Utzman appeal from an order denying their motion for 4 reconsideration of an order granting stay relief under 5 § 362(d)(1). 6 We AFFIRM the bankruptcy court. 7 FACTS 8 In 2007, the Debtors borrowed $1,365,000 from SunTrust 9 Mortgage, Inc. for the construction of a residence on real 10 property located in Mill Valley, California (the “Property”). 11 The obligation owed to SunTrust was secured by a deed of trust 12 against the Property. 13 Despite the Suntrust loan, the Debtors failed to pay all 14 obligations owed for construction services, so various state 15 statutory liens were recorded against the Property. They also 16 failed to pay all real property taxes in relation to the 17 Property and to pay for all required real property related 18 insurance. Eventually, they also defaulted on their payments 19 under the Suntrust note. 20 On the eve of Suntrust’s foreclosure, they filed a 21 chapter 11 petition. Their schedule A listed the Property with 22 a then current value of $1,300,000 and stated that it was 23 encumbered by secured claims in the amount of $1,978,493.29. 24 Their schedule D listed SunTrust’s secured claim in the amount 25 1 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 27 All “Rule” references are to the Federal Rules of Bankruptcy Procedure. All “Civil Rule” references are to the Federal Rules 28 of Civil Procedure.

2 1 of $1,897,262.29. The record shows that construction of the 2 residence remained incomplete, but the Debtors, nonetheless, 3 occupied the home. 4 Five months after the bankruptcy filing, SunTrust filed its 5 second motion for relief from stay seeking relief pursuant to 6 § 362(d)(1) and (d)(2). SunTrust argued that cause existed for 7 § 362(d)(1) relief based primarily on a lack of adequate 8 protection of its interest in the Property. Their adequate 9 protection argument did not focus exclusively on the lack of 10 payments on the undersecured Suntrust note. They also argued 11 that the failure to pay taxes, the existence of liens, the lack 12 of a certificate of occupancy, the lack of a sewer easement over 13 other debtor-owned real property, and the existence of a 14 landslide jeopardizing the pool created risks that the Debtors 15 were not addressing. 16 The Debtors opposed. They argued that, despite a lack of 17 equity, SunTrust was adequately protected by the value of the 18 Property. They asserted generally that real estate values in 19 the Bay Area were rising and that progress in the construction 20 of their residence resulted in enhancement of the Property’s 21 value. 22 At the hearing, the bankruptcy court noted that the Debtors 23 conceded that there was no equity in the Property, 24 notwithstanding SunTrust’s recent appraisal valuing the Property 25 at $1.95 million dollars, and that SunTrust held an allowed 26 claim in excess of $1.8 million dollars. It also noted the 27 Debtors’ concession that they had failed both to make any 28

3 1 postpetition payments to SunTrust and to pay property taxes.2 2 The bankruptcy court stated: 3 I’m having a hard time finding that this creditor is 4 adequately protected when your clients are not servicing this debt post-petition, and you believe the 5 property is not worth enough to cover the amount of their claim. Why isn’t that cause to grant this 6 motion? 7 Hr’g Tr. (June 4, 2015) at 4:14-19. 8 While this comment clearly focused on the lack of either equity 9 or debt service, the bankruptcy court also referenced the other 10 problems creating risk for Suntrust including construction 11 issues and liens. After the parties presented their arguments, 12 the matter was taken under submission. 13 The bankruptcy court subsequently entered an order granting 14 stay relief on June 9, 2015. It found that cause existed to 15 grant the request for relief under § 362(d)(1)3 based on the 16 Debtors’ concession that they were not making postpetition 17 payments to SunTrust and that there was no equity in the 18 Property. The bankruptcy court determined that the Debtors had 19 failed to offer any evidence on the anticipated completion date 20 of the construction project and that they had failed to address 21 the substantial administrative and zoning hurdles necessary to 22 complete the project. And it found that, 23 More importantly, Debtors offer no evidence as to the amount by which the [P]roperty’s value will be 24 enhanced by completion of the construction project, if 25 2 The Debtors subsequently paid real property taxes 26 accruing postpetition. 27 3 The bankruptcy court denied SunTrust’s request for 28 relief under § 362(d)(2).

4 1 and when that occurs. The fact that there is generally a rising real estate market in the Bay Area 2 does not mean this property, with its unfinished, long-delayed construction project, has risen in value 3 as the Debtors suggest. Ultimately, Debtors offer no evidence that the completion of the construction 4 project will actually enhance the [P]roperty’s value in any meaningful way. 5 6 Dkt. No. 73 at 2. 7 The bankruptcy court’s statements on the record at the hearing 8 and in its order, thus, make clear that in determining that 9 cause existed, it appropriately emphasized the lack of value in 10 the Property necessary to protect SunTrust against reasonably 11 feared potential harms. 12 The bankruptcy court’s stay relief, however, was 13 conditional. Its order provided that the Debtors could stay 14 termination of the stay by making monthly payments to SunTrust 15 in the amount of $9,100 beginning with payment that same month. 16 If the Debtors failed to timely make the monthly payments, 17 SunTrust was entitled to advise the bankruptcy court, which 18 would then enter an order dissolving the stay without further 19 notice or hearing. 20 The Debtors did not appeal from the stay relief order, and 21 it became final and nonappealable on June 23, 2015. 22 Instead, on August 12, 2015, the Debtors moved for 23 reconsideration of the stay relief order. The record as a 24 whole, including documents and argument on appeal, makes clear 25 that they moved for relief under Civil Rule 60(b)(2) - newly 26 discovered evidence. They argued that the value of the Property 27 had increased during the pendency of the case and, thus, that 28 there was no diminution of value and no failure of adequate

5 1 protection. In doing so, they repeated a factual assertion 2 generally made in connection with the stay relief motion, but 3 they now provided more specific evidence. 4 The Debtors also, however, more directly attacked the 5 bankruptcy court’s legal basis for the stay relief order and 6 argued that the condition in the stay relief order was directly 7 at odds with United Savings Association of Texas v. Timbers of 8 Inwood Forest Associates, Ltd., 484 U.S. 365 (1988), because 9 SunTrust was not entitled to interest payments as an 10 undersecured creditor. 11 Finally, in the alternative, they alleged error in the 12 calculation of the stay relief order payment and requested as 13 alternative relief that the bankruptcy court recalculate the 14 payment it required as a condition to continuing the stay. The 15 Debtors argued that the bankruptcy court used the wrong interest 16 rate in calculating the stay relief order payment. Thus, they 17 asserted that the correct monthly payment amount was $4,834.38, 18 rather than the $9,100 imposed by the stay relief order. 19 To support their reconsideration motion, the Debtors 20 attached the declaration of Steven Roulac, a CPA and consultant 21 retained to give an opinion on postpetition changes in Property 22 value. Roulac opined that the Property’s value was higher in 23 July 2015 than it was in December 2014; Roulac, however, did not 24 assign a precise value to the Property. Further, he expressly 25 stated that he did not undertake an independent investigation of 26 the intangible factors that might have an impact on value; 27 instead, he relied on the Debtor-husband who told him that: 28 “[H]e had no information that the [P]roperty had become either

6 1 more or less valuable as a consequence of any change in 2 intangible factors.” Dkt. No. 100 at 19. 3 At the hearing, the bankruptcy court ruled that the Debtors 4 had not met their burden of showing that new evidence existed 5 such that relief from the stay relief order was warranted under 6 Civil Rule 60(b)(2). It, thus, denied their motion for 7 reconsideration as to the appropriateness of stay relief itself 8 but agreed to the Debtors’ alternate request and reduced the 9 conditional monthly payment amount to $4,834.38. 10 Following the bankruptcy court’s entry of an order granting 11 in part and denying in part the Debtors’ motion for 12 reconsideration, the Debtors’ filed a notice of appeal, stating 13 that they were appealing from both the stay relief order and the 14 reconsideration order. 15 JURISDICTION 16 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 17 §§ 1334 and 157(b)(2)(A) and (G). We have jurisdiction under 18 28 U.S.C. § 158. 19 ISSUE 20 Whether the bankruptcy court abused its discretion in 21 denying in part the Debtors’ motion for reconsideration. 22 STANDARD OF REVIEW 23 We review the bankruptcy court’s denial of a motion for 24 reconsideration for an abuse of discretion. Weiner v. Perry, 25 Settles & Lawson, Inc. (In re Weiner), 161 F.3d 1216, 1217 (9th 26 Cir. 1998). A bankruptcy court abuses its discretion if it 27 applies the wrong legal standard, misapplies the correct legal 28 standard, or if its factual findings are illogical, implausible,

7 1 or without support in inferences that may be drawn from the 2 facts in the record. See TrafficSchool.com, Inc. v. Edriver 3 Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v. 4 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)). 5 We may affirm the decision of the bankruptcy court on any 6 basis supported by the record. See Hooks v. Kitsap Tenant 7 Support Servs., Inc., 816 F.3d 550, 554 (9th Cir. 2016). 8 DISCUSSION4 9 A. Scope of Appeal 10 After the filing of the notice of appeal, Judge Taylor 11 issued an order stating that it appeared, based on the timing, 12 that the scope of appeal was limited to the reconsideration 13 order. The order invited the parties to discuss the issue in 14 SunTrust’s responsive brief and the Debtors’ reply brief. 15 SunTrust argues that Rule 8002(b)(1)(D) limits review only 16 to the reconsideration order. It contends that the notice of 17 appeal was effective both as to the stay relief order and the 18 reconsideration order only if the Debtors filed their motion for 19 reconsideration within 14 days of entry of the stay relief 20 order. SunTrust points out that they did not do so. Nor did 21 22 23 4 The BAP Clerk of Court previously issued an order 24 regarding potential mootness based on the continuing conditional requirement in the stay relief order that the Debtors make 25 monthly payments to SunTrust. Judge Faris then issued an order deeming the mootness inquiry satisfied. As of the date of this 26 decision, SunTrust has not advised the Panel of any payment 27 default under the stay relief order and, thus, we presume that the Debtors have continued to make the requisite monthly 28 payments.

8 1 they file a motion for extension pursuant to Rule 8002(d).5 2 The Debtors do not disagree with SunTrust; they assert that 3 the finality of the stay relief order “is of little practical 4 significance to the resolution of this appeal.” Instead, the 5 Debtors contend that because the issues on appeal are legal in 6 nature, the Panel’s review of the reconsideration order is de 7 novo, the same “as would be involved if the [stay relief] order 8 were reviewed.” 9 We agree that only the reconsideration order is properly 10 before us on appeal. Rule 8002 requires that an appellant file 11 a notice of appeal within 14 days of entry of the order being 12 appealed. A motion to reconsider under Civil Rule 60(b) may 13 toll the time to appeal, but only if it is filed within the 14 14-day period. 15 Here, 65 days passed between the time that the bankruptcy 16 court entered the stay relief order and the Debtors filed the 17 motion for reconsideration. The motion, thus, did not toll the 18 time for appeal as to the stay relief order. As even the 19 Debtors concede, the only issue on appeal is whether the 20 bankruptcy court abused its discretion in denying, in part, 21 their motion for reconsideration. 22 B. The bankruptcy court did not abuse its discretion in 23 denying, in part, the Debtors’ motion for reconsideration. 24 Civil Rule 60(b), made applicable through Rule 9024, 25 provides that the bankruptcy court may relieve a party from an 26 5 27 The bankruptcy court could not grant such an extension as the rule expressly excludes extensions with respect to orders 28 granting stay relief. See Fed. R. Bankr. P. 8002(d)(2)(A).

9 1 order for the following reasons: 2 (1) mistake, inadvertence, surprise, or excusable neglect; 3 (2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time 4 to move for a new trial under [Civil] Rule 59(b); (3) fraud (whether previously called intrinsic or 5 extrinsic), misrepresentation, or misconduct by an opposing party; 6 (4) the judgment is void; (5) the judgment has been satisfied, released or 7 discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it 8 prospectively is no longer equitable; or (6) any other reason that justifies relief. 9 10 On appeal, the Debtors first argue that the bankruptcy 11 court deprived them of the opportunity to present evidence in 12 opposition to SunTrust’s motion for stay relief. They then 13 argue that the bankruptcy court abused its discretion in 14 granting stay relief. As the stay relief order is final and 15 nonappealable, we do not consider these arguments. 16 We note, however, that contrary to the Debtors’ argument, 17 neither the stay relief motion nor the stay relief order were 18 inconsistent with Local Rule 4001-1. That rule provides for a 19 preliminary hearing in relation to motions for relief from stay. 20 As the Debtors point out, it also provides that a debtor is not 21 required to, but may, file a declaration for a preliminary 22 hearing for stay relief. LBR 4001-1(f) (Bankr. N.D. Cal.). 23 Nothing in this rule, however, mandates that the bankruptcy 24 court hold an evidentiary hearing. Indeed, such an 25 interpretation would contravene the rule that a stay relief 26 hearing is intended to be a summary proceeding. See Veal v. Am. 27 Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 914-15 28 (9th Cir. BAP 2011). The bankruptcy court determined that an

10 1 evidentiary hearing was not necessary. Nothing in the record 2 suggests an error in this regard, but if one existed it was 3 waived when the Debtors failed to appeal from the stay relief 4 order. 5 Save for one or two references in the facts section and in 6 the conclusion section of their brief, the Debtors do not 7 reference their motion for reconsideration or Civil Rule 60(b) 8 directly, let alone discuss why the bankruptcy court abused its 9 discretion in denying, in part, that motion. The Debtors, thus, 10 waived review of the bankruptcy court’s Civil Rule 60(b) 11 determination. As that is the only issue on appeal, we may 12 affirm on that basis alone. 13 Further, if we undertake a review, we discern no basis for 14 reversal. 15 At the outset, we note that the bankruptcy court, in 16 effect, granted the relief requested by the Debtors in their 17 motion for reconsideration. The motion requested that the 18 bankruptcy court vacate the stay relief order and either 19 (1) deny SunTrust’s stay relief motion or schedule an 20 evidentiary hearing; or (2) “enter a new order predicating 21 continuance of the [] [s]tay on periodic payments of $4,834.38, 22 although doing so would be inconsistent with the Supreme Court’s 23 decision in Timbers.” The bankruptcy court, in fact, employed 24 the second option and decreased the monthly payment amount to 25 $4,834.38. The condition of payment has the effect of keeping 26 the stay in place so long as the condition continues to be met. 27 As to the merits, it is improper for a party seeking relief 28 from an order under Civil Rule 60(b) to raise legal arguments or

11 1 allege new facts that could have been raised at the prior 2 hearing or to rehash arguments already presented to the 3 bankruptcy court. See Fadel v. DCB United LLC (In re Fadel), 4 492 B.R. 1, 18 (9th Cir. BAP 2013). Here, the bankruptcy court 5 determined that the motion to reconsider improperly rehashed the 6 same arguments made by the Debtors in opposing the stay relief 7 motion. The record confirms that this was true as to the 8 adequate protection issue. 9 The Debtors argued in their opposition to the stay relief 10 motion that SunTrust was adequately protected by the value of 11 the Property in spite of the lack of equity as a result of the 12 rising real estate market in the Bay Area and anticipated 13 completion of the construction on the Property. They reiterated 14 this argument at the hearing for stay relief. The Debtors then 15 repeated this argument in their motion for reconsideration and 16 supported it with evidence that the market was generally rising 17 and that it was reasonable to assume that the value of the 18 Property was also rising. On this record, the bankruptcy court 19 correctly determined that the Debtors simply sought to rehash 20 the same arguments made in connection with the stay relief 21 motion. 22 We further note that the allegedly new evidence was far 23 from definitive. The expert noted that intangible factors 24 related to the Property could impact its value and then 25 acknowledged that he had not independently investigated whether 26 such intangible factors existed. Instead, he relied on the 27 Debtor-husband’s representations. In substance, as a result, 28 this evidence essentially duplicated the generalized assertion

12 1 of a rising market made at trial and found wanting by the 2 bankruptcy court at that time. 3 The Debtors also argue, briefly, that the reconsideration 4 order, like the stay relief order, is directly at odds with the 5 Bankruptcy Code and United Savings Association of Texas v. 6 Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365 (1988). 7 They then attack the bankruptcy court’s finding of cause to 8 grant stay relief under § 362(d)(1). As stated, the stay relief 9 order is not properly before us on appeal, and the Debtors have 10 not placed their argument within the framework of Civil 11 Rule 60(b). Thus, we do not address this issue except to note 12 that in granting stay relief “for cause,” the bankruptcy court 13 stated multiple concerns and in no way limited itself to an 14 analysis based on the increase of debt through interest accrual 15 on an undersecured claim – the issue addressed in Timbers. 16 CONCLUSION 17 Based on the foregoing, we AFFIRM. 18 19 20 21 22 23 24 25 26 27 28