FILED MAR 14 2018 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. AZ-17-1055-KuBL ) 6 DEED AND NOTE TRADERS, L.L.C., ) Bk. No. 4:10-bk-03640-BMW ) 7 Debtor. ) ___________________________________) 8 ) DEED AND NOTE TRADERS, L.L.C., ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M* 11 ) AMERICA’S SERVICING COMPANY, dba ) 12 Wells Fargo Bank N.A.; BANK OF ) AMERICA, N.A., Successor by Merger ) 13 to BAC Home Loans Servicing LP; ) CALIBER HOME LOANS, INC., as ) 14 servicer for LSF9 Master ) Participation Trust; CITIMORTGAGE, ) 15 INC.; DITECH FINANCIAL LLC, f/k/a ) Green Tree Servicing LLC; GREEN ) 16 TREE SERVICING, LLC; FLAGSTAR BANK;) NATIONSTAR MORTGAGE; OCWEN LOAN ) 17 SERVICING LLC; PNC MORTGAGE, a ) division of PNC Bank, NA; ) 18 RESIDENTIAL CREDIT SOLUTION, INC., ) as Servicer for J.P. Morgan ) 19 Acquisition Corp.; SETERUS INC.; ) WELLS FARGO BANK, N.A.; CHRISTIANA ) 20 TRUST, a Division of Wilmington ) Savings Fund Society, FSB, as ) 21 Trustee for Normandy Mortgage ) Services Loan Trust, Series ) 22 2013-17, as serviced by Rushmore ) Loan Management Services LLC; U.S. ) 23 BANK NATIONAL ASSOCIATION, as ) Trustee for Citigroup Mortgage Loan) 24 Trust Inc., Asset-Backed Pass- ) Through Certificates, Series ) 25 26 * This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 27 have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1.
-1- 1 2007-AMC1; DEUTSCHE BANK NATIONAL ) TRUST COMPANY, as Trustee, on ) 2 behalf of the holders of WaMu ) Mortgage Pass-Through Certificates,) 3 Series 2006-AR1, by and through its) servicing agent, Select Portfolio ) 4 Servicing, Inc.; FAY SERVICING, ) LLC; JPMORGAN CHASE BANK N.A.; J.P.) 5 MORGAN MORTGAGE ACQUISITION ) CORPORATION; RUSHMORE LOAN ) 6 MANAGEMENT SERVICES, LLC; U.S. BANK) NATIONAL ASSOCIATION, as Trustee ) 7 for Terwin Mortgage Trust 2005-8HE,) Asset-Backed Certificates, Series ) 8 2005-8HE, as serviced by ) Specialized Loan Servicing, LLC; ) 9 WILMINGTON TRUST, NATIONAL ) ASSOCIATION, as Successor Trustee ) 10 to Citibank, N.A., as Trustee for ) Bear Stearns ALT-A Trust 2006-4, ) 11 Mortgage Pass-Through Certificates,) Series 2006-4, by and through its ) 12 servicing agent, Select Portfolio ) Servicing, Inc.; SPECIALIZED LOAN ) 13 SERVICING LLC; THE BANK OF NEW YORK) MELLON, f/k/a, The Bank of New ) 14 York, successor in interest to JP ) Morgan Chase Bank, N.A. as Trustee ) 15 for Structured Asset Mortgage ) Investments II Inc. Bear Stearns ) 16 ALT-A Trust, Mortgage Pass-Through ) Certificates, Series 2005-7; THE ) 17 BANK OF NEW YORK MELLON, f/k/a, The) Bank of New York, successor in ) 18 interest to JP Morgan Chase Bank, ) N.A. as Trustee for Structured ) 19 Asset Mortgage Investments II Inc. ) Bear Stearns ALT-A Trust, Mortgage ) 20 Pass-Through Certificates, Series ) 2005-8; HOMEWARD RESIDENTIAL, INC.;) 21 DEUTSCHE BANK NATIONAL TRUST ) COMPANY, as Trustee, in trust for ) 22 Registered Holders of Soundview ) Home Loan Trust 2007-WMC1, Asset ) 23 Backed Certificates, Series ) 2007-WMC1, through servicing agent ) 24 Select Portfolio Servicing, Inc., ) ) 25 Appellees. ) ___________________________________) 26 Argued and Submitted on February 23, 2018 27 at Phoenix, Arizona 28 Filed - March 14, 2018
-2- 1 Appeal from the United States Bankruptcy Court for the District of Arizona 2 Honorable Brenda Moody Whinery, Bankruptcy Judge, Presiding 3 _____________________________________ 4 Appearances: Scott D. Gibson argued for appellant Deed and Note Traders, L.L.C.; Craig Goldblatt of Wilmer 5 Cutler Pickering Hale & Dorr LLP argued for appellee Bank of America N.A.; Katherine Anderson 6 Sanchez of Dickinson Wright PLLC argued for appellee Flagstar Bank; Kyle S. Hirsch of Bryan 7 Cave LLP argued for appellees JPMorgan Chase Bank N.A. and J.P. Morgan Mortgage Acquisition 8 Corporation; Steven D. Jerome of Snell & Wilmer LLP appeared for appellees America’s Servicing 9 Company and Wells Fargo Bank, N.A.; Leticia Butler appeared for appellee Caliber Home Loans, 10 Inc.; Janet M. Spears of Aldridge Pite, LLP appeared for appellees Citimortgage, Inc., Fay 11 Servicing, LLC, and Rushmore Loan Management Services, LLC; Amelia B. Valenzuela of Quarles & 12 Brady LLP appeared for appellees Deutsche Bank National Trust Company and Residential Credit 13 Solution, Inc.; Michael Bosco appeared for appellees Nationstar Mortgage and PNC Mortgage; 14 Solomon S. Krotzer appeared for appellee Ocwen Loan Servicing LLC; Aaron Michael Waite of 15 Weinstein & Riley, PS appeared for appellees Specialized Loan Servicing LLC, The Bank of New 16 York Mellon, and U.S. Bank National Association. ______________________________________ 17 Before: KURTZ, BRAND, and LAFFERTY, Bankruptcy Judges. 18 When Deed and Note Traders, LLC (Debtor) filed its second 19 chapter 111 petition, it owned over 150 residential properties, 20 each secured by separate notes held by a variety of lenders and 21 loan servicers (Secured Creditors), including appellees. Debtor 22 confirmed its plan of reorganization and later filed a motion 23 for an order to show cause (OSC Motion), seeking to have certain 24 25 1 26 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, 27 Rule references are to the Federal Rules of Bankruptcy Procedure, and Civil Rule references are to the Federal Rules of Civil 28 Procedure.
-3- 1 Secured Creditors held in contempt for failing to comply with 2 the terms of the plan. The bankruptcy court held numerous 3 hearings on the OSC Motion over a five-year period, and gave 4 Debtor multiple opportunities to supplement its allegations of 5 contempt with clear and convincing evidence and provide proof of 6 damages in connection with each property. 7 At the last hearing, the bankruptcy court took the matter 8 under advisement and later issued its Ruling and Order Regarding 9 Debtor’s Application For An Order to Show Cause Re: Contempt and 10 Debtor’s Motion to Modify the Plan.2 The court denied the OSC 11 Motion, as supplemented, finding that Debtor failed to provide 12 clear and convincing evidence showing that any of the Secured 13 Creditors had failed to comply with the confirmed plan. The 14 bankruptcy court further found that even if Debtor had made a 15 prima facie case for contempt, it failed to provide proof of 16 damages. Debtor appeals from this ruling. We AFFIRM. 17 I. FACTS3 18 Debtor is an Arizona limited liability company that was 19 formed in 1993. Since then, it has engaged in the real estate 20 business in Tucson, Arizona, purchasing, rehabilitating, leasing 21 and selling residential properties. 22 2 23 The order on appeal also denied Debtor’s motion to modify its confirmed plan. Debtor has not put that ruling at issue in 24 this appeal. Thus, we do not consider it. See Padgett v. Wright, 587 F.3d 983, 985 n.2 (9th Cir. 2009). 25 3 26 For the background facts and procedural history, we borrow heavily from the facts set forth in In re Deed and Note Traders, 27 LLC, BAP Nos. AZ-11-1091-PaDJu, AZ-11-1092-PaDJu, 2012 WL 1191891 (9th Cir. BAP Apr. 5, 2012) and the bankruptcy court’s ruling and 28 order that is the subject of this appeal.
-4- 1 Debtor financed the acquisition of its properties using its 2 own operating income and through the many loans it obtained from 3 individual investors. These were generally short-term, high 4 interest loans. Debtor’s business plan was to hold a property 5 for about a year, during which time Debtor would rehabilitate 6 the property, and then refinance the loan with traditional 7 lenders at market rates. As property values increased, Debtor 8 would sell property in its inventory at a profit. 9 In December 2006, the Arizona attorney general investigated 10 Debtor’s business practices and, after lengthy negotiations, the 11 parties entered into a consent agreement. Under the terms of 12 the agreement, Debtor was required to sell a number of houses 13 back to their original owners and to pay significant attorney 14 fees incurred by the state. These payments and transactions 15 occurred at the beginning of a declining real estate market and, 16 according to Debtor, practically eliminated its operating 17 reserves. Debtor’s financial problems were exacerbated in 18 August 2007 when First Magnus Financial Corporation, a large 19 provider of traditional and other residential loan programs in 20 Arizona, shut down and filed for bankruptcy. 21 A. Debtor’s First Bankruptcy Case 22 The combination of fines, the loss of funding sources for 23 buyers from Debtor’s inventory, and the corresponding loss of 24 sales revenue caused Debtor to file its first chapter 11 25 petition in September 2007. There were over 159 properties 26 involved, valued at over $40 million, with $30 million in 27 secured claims against those properties. 28 Debtor filed its plan and disclosure statement in December
-5- 1 2007. The plan was amended on April 24 and May 22, 2008 (First 2 Plan). The First Plan classified the Secured Creditors in 3 Class 4. All Class 4 claimants would retain their respective 4 security interests on the properties securing their claims and 5 would be paid as follows: 6 Payment of the Class 4 Claim. Upon the earliest to occur of (i) the Maturity Date (as defined below), 7 (ii) a Sale of the property securing said Claim, other than a sale where the Debtor provides all or any 8 portion of the financing for the sale, or (iii) the refinancing of the secured indebtedness against said 9 property, the entire amount of the Class 4 Claims and all accrued-but-unpaid interest thereon (as provided 10 in paragraph 6.1(a), above) shall be due and payable in full; provided, however, that absent a Sale or 11 refinancing of the indebtedness secured by said Property, commencing on the earlier of (i) fifteenth 12 (15th) day of the second (2nd) calendar month following the Effective Date, or 45 days after the 13 Effective Date, interest on the Class 4 Claims shall be paid monthly, with the entire amount of the 14 Outstanding Principal and all accrued-but-unpaid interest due and payable as to those Class 4 Claims 15 that are secured by a first position lien (other than real estate taxes) on or before the seventh 16 anniversary of the Effective date and as to those Class 4 Claim that are secured by a 2d or 3d lien 17 position, on or before the fifth anniversary of the Effective Date (the “Maturity Date”). 18 19 In October 2008, the bankruptcy court entered an Order 20 Confirming Debtor’s Plan of Reorganization Dated December 7, 21 2007, as Amended. About three months later, the bankruptcy 22 court entered a final decree and order closing the case on the 23 basis that payments had commenced under the First Plan and 24 Debtor had substantially consummated the plan under § 1101. 25 B. The Current Chapter 11 Bankruptcy Case 26 Four days after the closing of the First Case, Debtor filed 27 28
-6- 1 a second chapter 11 petition on February 12, 2010.4 2 1. The Confirmation of Debtor’s Second Plan 3 In April 2010, Debtor proposed a plan of reorganization 4 (Second Plan). The only significant difference between the 5 First and Second Plans was Debtor’s proposal to reduce the 6 Class 4 Secured Creditors’ allowed claims to the “market value” 7 of the properties securing those claims as of the effective date 8 of the plan; i.e., the Second Plan proposed to “cram down” these 9 claims. 10 In June 2010, Debtor filed its First Amended Disclosure 11 Statement for Debtor’s Plan of Reorganization Dated April 2, 12 2010 (Amended Disclosure Statement). Attached as Exhibit 5 was 13 a schedule of all of the properties and lenders with alleged 14 secured claims against Debtor’s bankruptcy estates, the balances 15 of the liens against each property, and the estimated current 16 fair market value of each property. 17 Debtor’s manager submitted a declaration in support of 18 confirmation of the Second Plan stating: “In filing this case, 19 the Debtor did not attempt in any way to alter the payment due 20 its creditors as established in the Plan for the First 21 Chapter 11, but only to attempt to reduce the debt amounts to 22 reflect current market value of the properties as permitted 23 under section 506 of the Bankruptcy Code.” Attached to the 24 declaration was an exhibit which showed the property address, 25 the lender name, the current loan balance, the current fair 26 market value, the current new loan amount at current fair market 27 28 4 The case was assigned to Judge Eileen Hollowell.
-7- 1 value, a proposed new interest payment, and the monthly rental 2 income, if applicable. 3 In February 2011, the bankruptcy court entered an order 4 confirming Debtor’s Second Plan (Second Confirmation Order). 5 Under the terms of the confirmed plan, Class 4 Secured Creditors 6 were to receive interest only payments at a rate of 5.6% for the 7 duration of the plan based upon the readjusted value of the 8 property as determined by the bankruptcy court. After the 9 Second Confirmation Order was entered, the bankruptcy court 10 entered orders approving stipulations between Debtor and Secured 11 Creditors regarding the current fair market value of the 12 relevant properties. If the current fair market value of a 13 property was not resolved by stipulation, the bankruptcy court 14 determined the value based on the evidence in the record and 15 entered orders accordingly. 16 Several Secured Creditors appealed the Second Confirmation 17 Order to this Panel. The Panel affirmed the bankruptcy court’s 18 order confirming the plan in In re Deed and Note Traders, LLC, 19 2012 WL 1191891. 20 2. The First Motion And Order Directing Secured Creditors To Comply With The Terms Of The Second Plan 21 22 In September 2012 — months after the Second Confirmation 23 Order was entered and upheld on appeal — Debtor filed a Motion 24 for Entry of Order Directing Lenders to Comply with Terms of 25 Confirmed Plan of Reorganization or Be Subject to Contempt 26 Citation (Motion to Comply). Debtor alleged that most of its 27 Secured Creditors had ignored the plan and continued to insist 28 that Debtor pay its mortgage according to the original terms of
-8- 1 the loans. Exhibit “A” to the Motion to Comply attached 2 correspondence sent by various Secured Creditors to Debtor. 3 Debtor maintained that this correspondence established that most 4 of its Secured Creditors were not complying with the terms of 5 the Second Plan. 6 The bankruptcy court issued an Order Directing Secured 7 Creditors to Comply with Terms of Plan (Order to Comply). The 8 order required all Class 4 Secured Creditors to accept payments 9 from Debtor as provided for under the Second Plan and to amend 10 their records to reflect their treatment in the Second Plan. If 11 a Secured Creditor failed to abide by the order, Debtor was to 12 file a motion requesting the court issue an order directing the 13 Secured Creditor to appear and show cause why it should not be 14 held in contempt for failure to abide by the terms of the Second 15 Plan. 16 3. The OSC Motion 17 On March 6, 2013, Debtor filed the OSC Motion alleging that 18 some Secured Creditors did not comply. The OSC Motion alleged 19 that certain Secured Creditors refused to abide by the terms of 20 the Second Plan; i.e., many had returned Debtor’s payments, 21 which were in amounts consistent with the Second Plan, insisting 22 that larger amounts be paid or that the arrearages be paid 23 before payments would be accepted, and others refused to accept 24 payoffs of the restructured debt, insisting that the original 25 amounts of the indebtedness be paid before a sale could occur. 26 These general allegations were asserted against the 27 “institutional lenders,” without specifying any particular 28 creditor or particular wrongdoing.
-9- 1 Debtor also represented that it had served copies of the 2 Order to Comply upon its Secured Creditors, seeking compliance 3 with the Second Plan. In the end, Debtor requested the 4 bankruptcy court to issue an Order to Show Cause to the Secured 5 Creditors identified in Exhibit “A” attached to the motion, 6 directing that they appear and show cause why they should not be 7 held in contempt due to their failure to comply with the terms 8 of the Second Plan, and if appropriate, award damages to Debtor. 9 Exhibit “A” showed approximately fifty-seven loans and listed 10 the creditor’s name, the property, and the loan number. 11 On March 12, 2013, the bankruptcy court issued an Order to 12 Show Cause Regarding Creditors’ Failure to Comply with Debtor’s 13 Plan (OSC Order), requiring the named Secured Creditors to 14 appear and show cause why they should not be held in contempt 15 for failing to comply with the terms of the Second Plan. 16 Attached to the OSC Order as Exhibit “A” was a list of loans and 17 the corresponding creditors alleged to have failed to comply 18 with the Second Plan. 19 Numerous Secured Creditors responded to the OSC Motion, 20 complaining that the treatment of Class 4 claims in the First 21 Plan and the Second Plan was indeterminate and vague — 22 individual loans and properties were not identified, nor were 23 the terms relating to the fair market value of the properties, 24 payment amounts or payment terms (including taxes and 25 insurance). Without this information, the Secured Creditors 26 argued, plan compliance was nearly impossible. 27 The bankruptcy court held a hearing on the OSC Order on 28 April 11, 2013. Secured Creditors who appeared complained that
-10- 1 they needed to know exactly what the allegations of contempt 2 were so that they could conduct investigations and prevent 3 reoccurrence of any alleged violations of the terms of the 4 Second Plan. The bankruptcy court ordered Debtor’s counsel to 5 work towards stipulations with those creditors in an Interim 6 Order Re: Order to Show Cause Regarding Creditors’ Failure to 7 comply with Debtor’s Plan (Interim Order) entered July 1, 2013. 8 For Secured Creditors who did not appear at the hearing, 9 the bankruptcy court directed Debtor to lodge an order that 10 specified, by property and by lender, those lenders that failed 11 to appear, and finding that they were in contempt. The court 12 ordered Debtor also to provide a calculation of damages by 13 property and lender and to provide notice of the same to the 14 lender. If the Secured Creditor did not respond, the bankruptcy 15 court would award judgment in favor of Debtor for the amount of 16 the damages submitted. 17 There is nothing in the record showing that Debtor’s 18 counsel complied with the directives in the Interim Order with 19 respect to the non-appearing Secured Creditors. Moreover, since 20 Debtor had not complied with the Interim Order with respect to 21 several Secured Creditors who had appeared at the hearing, those 22 creditors filed a motion to compel Debtor to comply with the 23 court’s order. On March 6, 2014, the bankruptcy court held a 24 hearing on the motion to compel. At the hearing, the 25 complaining Secured Creditors were permitted to upload orders 26 clarifying their respective treatment under the Second Plan. 27 Debtor’s counsel did not object to those stipulations. 28
-11- 1 4. The Second Motion For Entry Of Order Directing Secured Lenders To Comply With Debtor’s Confirmed Plan 2 3 On June 5, 2014, Debtor filed a second motion for entry of 4 an order directing Secured Creditors to comply with Debtor’s 5 confirmed plan (Second OSC Motion). Similar to the first OSC 6 Motion, the Second OSC Motion did not contain any specific 7 allegations of wrongdoing in connection with a specific Secured 8 Creditor. In the Second OSC Motion, Debtor moved for an order 9 directing the non-complying Secured Creditors to provide the 10 following information to Debtor: (1) the name, address, and 11 contact person (or counsel) for the current owner or servicer of 12 the loan;5 (2) confirmation of the current principal balance of 13 the loan as set forth in the plan, the stipulation of the 14 parties, or the order of the court determining value; (3) the 15 amount of interest accruals on the unpaid principal balance 16 since the confirmation of the plan; and (4) if taxes and 17 insurance have been impounded and not paid, pay all such taxes 18 and insurance, and any interest or penalties thereon, without 19 charging to Debtor such penalties and interest and account to 20 Debtor for the same. Debtor alleged that it had diligently 21 requested this information from the Secured Creditors, but was 22 unable to obtain it. Finally, Debtor reserved its right to 23 sanction or amend the damages against the Secured Creditors 24 identified in its original OSC Motion. 25 26 5 Debtor alleged that many loans had been transferred to new 27 lenders or servicers since confirmation of the Second Plan without providing transferees the information they needed to 28 comply with the terms of the Second Plan.
-12- 1 Numerous lenders joined in an omnibus response to the 2 Second OSC Motion, contending that they had lodged orders 3 resolving the Order to Show Cause and clarifying their treatment 4 under the Second Plan. These creditors maintained that they 5 should not be included in Debtor’s Second OSC Motion. 6 On July 10, 2014, the bankruptcy court held a hearing on 7 the Second OSC Motion. The bankruptcy court vacated the motion 8 as to those creditors who could produce stipulations. As to the 9 Secured Creditors who did not respond, the bankruptcy court 10 directed Debtor to update the list of creditors pertaining to 11 the Second OSC Motion, lodge an order for each creditor, and 12 serve it pursuant to the adversary rules. The orders were to 13 include language in bold that failure to comply within thirty 14 (30) days may result in the imposition of sanctions, including 15 but not limited to, an award of attorney’s fees to Debtor. The 16 record reflects that Debtor did not comply with the bankruptcy 17 court’s instruction to update the list of creditors or lodge 18 orders for each creditor, nor were any such orders ever entered 19 by the bankruptcy court. 20 5. Debtor’s Motion To Modify The Second Plan 21 On June 10, 2015, Debtor filed a Motion to Modify the 22 Second Plan (Motion to Modify). Debtor alleged that numerous 23 Secured Creditors failed to comply with the terms of the 24 confirmed Second Plan and continued to report various loans, 25 which were otherwise current, in a default status. As a result, 26 Debtor argued that it was unable to qualify for refinancing of 27 these loans within the time frame contemplated by First Plan. 28 On this basis, Debtor sought to modify the confirmed Second Plan
-13- 1 to extend the deadline for maturity of the secured loans under 2 its First Plan and Second Plan for a period of five years, until 3 November 23, 2020.6 4 6. The October 14, 2015 Hearing 5 On October 14, 2015, the bankruptcy court held a hearing on 6 Debtor’s Motion to Modify and a continued hearing on the OSC 7 Motion. Debtor’s counsel again asserted in general terms that 8 certain Secured Creditors were not complying with the terms of 9 the Second Plan. 10 The bankruptcy court ordered Debtor to (1) re-file and/or 11 supplement the OSC Motion with an updated list of the alleged 12 non-compliant Secured Creditors and to serve it on those 13 creditors and (2) clearly specify the nature and extent of each 14 creditor’s alleged failure to comply with the Second Plan. The 15 court conditionally granted the Motion to Modify through 16 December 31, 2015, to give Debtor an opportunity to prepare and 17 serve the supplement and to obtain a hearing prior to the 18 expiration of the extension. 19 7. The OSC Supplement 20 On December 30, 2015, Debtor filed the supplement to the 21 OSC Motion (OSC Supplement). Attached to the OSC Supplement was 22 a spreadsheet showing (1) the list of properties owned by 23 Debtor; (2) the Secured Creditors holding liens against the 24 properties; (3) the amounts of the loan for each property; 25 (4) the payment amounts; and (5) the reasons Debtor thought the 26 27 6 Months later, Debtor’s bankruptcy case was reassigned to 28 Judge Brenda Whinery.
-14- 1 Secured Creditor was not in compliance with the terms of the 2 Second Plan. These reasons included, among others: 3 (1) “Lender not following [bankruptcy] of 4/11. Loan 4 amount incorrect and 9/2015 [statement] showing unpaid payments 5 back to 8/2009 (pre-confirmation). Lender stopped paying 6 insurance in 2010, so [Debtor] pays, Lender pays taxes.” 7 (2) “Lender loan [amount] incorrect. Attorney filed 8 clarification with court 5/28/14, but lender’s statement dated 9 9/2015 loan amount still incorrect. [Debtor] paid some 10 insurance but lender now paying insurance and taxes.” 11 (3) “Lender not sending [statements] since loan is in 3rd 12 party name. Don’t know if lender following [bankruptcy] 13 interest rate or loan amount. Lender has NOT paid taxes. 14 [Debtor] pays insurance.” 15 The spreadsheet, which included over ninety properties, was 16 not verified, authenticated or signed by Debtor’s 17 representative, nor was there a declaration submitted with the 18 spreadsheet stating who had prepared the list or what 19 information was relied upon in preparing it. 20 On the same date, Debtor requested a hearing on the OSC 21 Supplement, but did not file a motion to expedite. Also on the 22 same date, Debtor filed a Motion to Extend the Term of the 23 Debtor’s Plan of Reorganization (Motion to Extend) and lodged a 24 form of order with the Motion to Extend. Debtor did not request 25 a hearing on the Motion to Extend, nor any expedited 26 consideration. The bankruptcy court did not enter the lodged 27 order. 28
-15- 1 8. The March 2, 2016 Hearing 2 Numerous objections and responses were filed by various 3 Secured Creditors to the Motion for OSC, OSC Supplement and 4 Motion to Modify.7 Some Secured Creditors sought clarification 5 of the confirmed Second Plan because it was so convoluted that 6 clarifications were necessary to update their systems. They 7 also complained that Debtor had failed to include any evidence 8 to show what terms of the Second Plan were violated or to 9 establish any wrongdoing on the part of the individual creditor 10 with respect to the property identified. Finally, other 11 creditors complained that certain properties should not have 12 been included since the creditor had obtained a clarification 13 order. 14 Secured Creditors also objected to any modification to the 15 16 7 Objections and/or responses to the Motion for OSC and/or 17 OSC Supplement were filed by Bank of America, N.A., Homeward Residential, Inc., Ocwen Loan Servicing, LLC, Christiana Trust, 18 U.S. Bank National Association, Citigroup Mortgage Loan Trust 19 Inc., PNC Mortgage, Caliber Home Loans, Inc., as servicer for LSF9 Master Participation Trust, Rushmore Loan Management 20 Services, LLC, CitiMortgage, Inc., J.P. Morgan Mortgage Acquisition Corp., Flagstar Bank, FSB, JPMorgan Chase Bank, N.A., 21 Nationstar Mortgage, LLC, Deutsche Bank National Trust Company, Ditech Financial LLC fka Green Tree Servicing LLC, America’s 22 Servicing Company dba Wells Fargo Bank, N.A. and Wells Fargo 23 Bank, N.A., Bank of America, N.A., and Seterus, Inc. Objections and/or responses to the Motion to Modify were 24 filed by PNC Mortgage, Flagstar Bank, FSB, Residential Credit Solutions, as servicer for J.P. Morgan Acquisition Corp., Ocwen 25 Loan Servicing, LLC and Green Tree Servicing, LLC (collectively), 26 Rushmore Loan Management Services, LLC, Wells Fargo Bank, N.A. and Ocwen Loan Servicing, LLC (collectively), CitiMortgage, Inc., 27 JPMorgan Chase Bank, N.A., Deutsche Bank National Trust Company, Ditech Financial LLC fka Green Tree Servicing, LLC, and Seterus, 28 Inc.
-16- 1 Second Plan to extend the term of the plan because they would 2 automatically be out of compliance with the plan and would have 3 to adjust their systems accordingly. 4 On March 2, 2016, the bankruptcy court held a hearing to 5 consider the OSC Supplement and the Motion to Modify, as well as 6 the numerous objections and responses. Debtor’s counsel argued 7 that certain Secured Creditors misapplied plan payments, which 8 prompted the filing of the OSC Motion. He further asserted that 9 the misapplied payments initiated erroneous reports of default 10 and eventual foreclosure proceedings which damaged Debtor. 11 Counsel requested the bankruptcy court to enter an order 12 directing the non-complying Secured Creditors to enter into 13 stipulations with Debtor or otherwise enter an order finding 14 that they were not in compliance with the confirmed plan. These 15 stipulations would confirm principal balances pursuant to the 16 confirmed plan or stipulated between the parties, confirm the 17 fixed interest rate during the plan, provide a payment history 18 with information regarding payment application, provide an 19 escrow accounting, correct any erroneous reports of default with 20 the credit agencies, and provide timely and correct payoff 21 statements. If taxes and insurance were not timely paid, Debtor 22 requested that the lenders be required to pay any fees and costs 23 for the late payments incurred. 24 Several Secured Creditors appeared at the hearing, stating 25 that they had either complied with the plan or were unsure if 26 they complied without a clarification order. As to plan 27 modification, one lender’s counsel argued that there should be 28 no extension of the loan maturity dates with respect to all
-17- 1 creditors since the balloon payments with his client were past 2 due and thus Debtor was in default. Debtor’s counsel responded 3 that Debtor could not pay balloon payments at this time and thus 4 was requesting an extension of the maturity date as to all 5 creditors. Debtor’s counsel further represented that he was 6 prepared to present evidence regarding the effect of the 7 erroneous defaults and how that negatively impacted Debtor, 8 including Debtor’s credit rating, which impaired its ability to 9 refinance. After considering the arguments of counsel, the 10 bankruptcy court took the matters under advisement. 11 9. The Bankruptcy Court’s Ruling 12 On February 3, 2017, the bankruptcy court issued its ruling 13 and order. The court denied the OSC Motion, as supplemented, 14 finding that Debtor failed to provide sufficient evidence or 15 detail to establish a prima facie case for contempt showing that 16 the lenders failed to comply with confirmed Second Plan. The 17 bankruptcy court further found that even if Debtor had met its 18 prima facie case for contempt, Debtor failed to provide or 19 establish any basis for damages.8 Debtor filed a timely appeal 20 from the bankruptcy court’s order. 21 C. Post-Appeal Events 22 1. The State Court Lawsuit 23 On April 13, 2017, Debtor filed a complaint in the Arizona 24 Pima County Superior Court (Case No. C20171805) against 25 8 26 The bankruptcy court also denied Debtor’s Motion to Modify on the grounds that the Second Plan was substantially 27 consummated. Therefore, Debtor could not meet the requirements under § 1127(b) for modification. As noted, this ruling is not 28 at issue in this appeal.
-18- 1 approximately twenty Secured Creditors seeking damages for 2 breach of contract. Debtor alleged that these Secured Creditors 3 failed to comply with the confirmed plan. As a result, it was 4 damaged in an amount to be determined at trial. 5 On August 11, 2017, the matter was removed to the 6 bankruptcy court. Thereafter, the removing parties, Wells Fargo 7 Bank, N.A. and Bank of America, sought to have the complaint 8 dismissed or, alternatively, for a more definite statement. 9 Debtor filed a motion to remand, contending that Wells Fargo and 10 BOA were two of twenty lenders involved in the breach of 11 contract action in the state court. Debtor also maintained that 12 the bankruptcy court was without jurisdiction since the Second 13 Plan had matured and this appeal was pending. 14 At the hearing on the motion to dismiss and motion to 15 remand, Debtor’s counsel confirmed that the Second Plan matured 16 on its terms and that this appeal was pending. He further 17 stated that the administrative case was open only because he was 18 not sure how a final decree would affect this appeal. Finally, 19 counsel contended that the bankruptcy court did not have 20 jurisdiction to consider the motion to dismiss because this 21 appeal was pending. 22 The bankruptcy court later granted the motion to remand. 23 Due to its ruling, the court found it unnecessary to consider 24 the motion to dismiss. The court entered the order granting the 25 motion to remand on December 15, 2017, and the adversary 26 proceeding was closed. 27 28
-19- 1 2. The JP Morgan Parties’ Request To Be Dismissed From This Appeal 2 3 Appellees JPMorgan Chase Bank N.A. and J.P. Morgan Mortgage 4 Acquisition Corporation filed a motion requesting that they be 5 dismissed from this appeal based upon certain clarification 6 orders which purportedly showed they were in compliance with the 7 plan. A motions Panel denied their motion without prejudice to 8 allow the parties an opportunity to argue the issues raised 9 before the merits Panel. Because we affirm on the merits, we do 10 not re-visit the denial of the motion. 11 II. JURISDICTION 12 The bankruptcy court had jurisdiction over this proceeding 13 under 28 U.S.C. §§ 1334 and 157(b)(2)(O). 14 Appellee Flagstar Bank FSB (Flagstar) contends that this 15 appeal should be dismissed since the order on appeal is 16 interlocutory, no leave was requested, and thus the Panel lacks 17 jurisdiction. Therefore, we consider our jurisdiction over this 18 appeal. 19 To constitute a final, appealable judgment, an order 20 responding to a contempt motion must completely dispose of the 21 contempt motion. See Sportmart, Inc. v. Wolverine World Wide, 22 Inc., 601 F.2d 313, 315-16 (7th Cir. 1979); Sanders v. Monsanto, 23 574 F.2d 198, 199 (5th Cir. 1978) (denial of contempt motion 24 based on consent decree “final and reviewable because no further 25 district court action is required to give life to the denial”). 26 Here, the bankruptcy court’s ruling denying Debtor’s OSC 27 Motion came at the end of Debtor’s bankruptcy case and in the 28 order denying Debtor’s Motion to Modify, the court found that
-20- 1 the Second Plan was substantially consummated and fully matured 2 (the maturity date was November 23, 2015). There is thus 3 nothing left for the bankruptcy court to do except close the 4 case. Accordingly, we conclude that the order on appeal 5 completely disposes of the OSC Motion, as supplemented, and is a 6 final order. We have jurisdiction under 28 U.S.C. § 158. 7 III. ISSUE 8 Whether the bankruptcy court abused its discretion by 9 denying Debtor’s OSC Motion, as supplemented, which sought to 10 hold Secured Creditors in contempt for failing to comply with 11 the terms of its confirmed Second Plan. 12 IV. STANDARDS OF REVIEW 13 An order denying a motion for civil contempt is reviewed 14 for an abuse of discretion. Knupfer v. Lindblade (In re Dyer), 15 322 F.3d 1178, 1191 (9th Cir. 2003). 16 We also review a court’s decision whether to hold an 17 evidentiary hearing for an abuse of discretion. See Murphy v. 18 Schneider Nat’l, Inc., 362 F.3d 1133, 1139 (9th Cir. 2004). 19 A bankruptcy court abuses its discretion if it applies the 20 wrong legal standard, misapplies the correct legal standard, or 21 if its factual findings are illogical, implausible or without 22 support in inferences that may be drawn from the facts in the 23 record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 24 820, 832 (9th Cir. 2011) (citing United States v. Hinkson, 25 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)). 26 We may affirm on any ground supported by the record, 27 regardless of whether the bankruptcy court relied upon, rejected 28 or even considered that ground. Fresno Motors, LLC v. Mercedes
-21- 1 Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014). 2 V. DISCUSSION 3 A. Standards For Contempt Under § 105 4 The OSC Motion and OSC Supplement asked the bankruptcy 5 court to issue an order holding various Secured Creditors in 6 contempt for their failure to comply with the terms of the 7 Second Plan, as confirmed. “Once confirmed, a Chapter 11 plan 8 acts as both a contract which binds the parties and as an order 9 of the bankruptcy court.” JCB, Inc. v. Union Planters Bank, NA, 10 539 F.3d 862, 870 (8th Cir. 2008). The bankruptcy court has the 11 authority to hold a party in contempt for violating a court 12 order such as the Second Confirmation Order, and impose civil 13 contempt sanctions under § 105(a). In re Dyer, 322 F.3d at 14 1189–90; Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1069 15 (9th Cir. 2002). 16 The standards for an order of contempt are high. To find a 17 party in civil contempt, the moving party bears the burden of 18 proving that the offending party knowingly violated a definite 19 and specific court order by clear and convincing evidence. 20 In re Dyer, 322 F.3d at 1190–91. To be definite and specific, 21 the order at issue must unambiguously command the offending 22 party to perform or refrain from performing in accordance with 23 the order, and leave “no uncertainty in the minds of those to 24 whom it is addressed.” In re 1990’s Caterers Ltd. d/b/a Vina de 25 Villa Caterers, 531 B.R. 309, 319 n.13 (Bankr. E.D.N.Y. 2015); 26 see also Int’l Longshoremen’s Ass’n, Local 1291 v. Phila. Marine 27 Trade Ass’n, 389 U.S. 64, 76 (1967) (“The judicial contempt 28 power is a potent weapon. When it is founded upon a decree too
-22- 1 vague to be understood, it can be a deadly one.”). 2 In addition, under the clear and convincing standard, the 3 evidence must create a conviction that the factual contention is 4 “highly probable.” Colorado v. New Mexico, 467 U.S. 310, 316 5 (1984); United States v. Jordan, 256 F.3d 922, 930 (9th Cir. 6 2001) (“[C]lear and convincing evidence ‘indicat[es] that the 7 thing to be proved is highly probable or reasonably certain. 8 This is a greater burden than preponderance of the 9 evidence, . . . but less than evidence beyond a reasonable 10 doubt.’”.). 11 Once the moving party has made this prima facie showing, 12 the burden of production then shifts to the contemnor to 13 demonstrate why it was unable to comply with the court’s order. 14 FTC v. Affordable Media, 179 F.3d 1228, 1239 (9th Cir. 1999); 15 see also Battaglia v. United States, 653 F.2d 419, 422 (9th Cir. 16 1981). However, “shifting the burden from the movant to the 17 alleged contemnor without proving the underlying noncompliance 18 is impermissible.” Nisselson v. Empyrean Inv. Fund, L.P. (In re 19 Marketxt Holdings Corp.), 336 B.R. 39, 52 (Bankr. S.D.N.Y. 2006) 20 (citing Levin v. Tiber Holding Corp., 277 F.3d 243, 251 (2d Cir. 21 2002)). 22 If the alleged contemnor satisfies its burden of 23 demonstrating why it was unable to comply, the movant must carry 24 its burden of proof to refute this inability. Battaglia, 25 653 F.2d at 423. Accordingly, while the burden of production 26 may shift, the burden of persuasion or burden of proof with 27 clear and convincing evidence is always on the moving party 28 seeking a finding of civil contempt. Id. A bankruptcy court
-23- 1 has wide latitude in determining whether there has been 2 contemptuous defiance of its order. Gifford v. Heckler, 3 741 F.2d 263, 266 (9th Cir. 1984). 4 Civil penalties for contempt must either be compensatory or 5 designed to coerce compliance. F.J. Hanshow Enters., Inc. v. 6 Emerald River Dev., Inc., 224 F.3d 1128, 1137-38 (9th Cir. 7 2001). Damages for civil contempt awards must be proven by a 8 preponderance of the evidence. Ahearn ex rel. N.L.R.B. v. Int’l 9 Longshore & Warehouse Union, Locals 21 & 4, 721 F.3d 1122, 1130 10 (9th Cir. 2013). The factfinder may make a “just and reasonable 11 estimate” of damages based on inferential and direct proof. 12 Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 13 124 (1969) (“It would be an inducement to make wrongdoing so 14 effective and complete in every case as to preclude any 15 recovery, by rendering the measure of damages uncertain.”). 16 B. Analysis 17 Debtor argues on appeal that the bankruptcy court erred by 18 denying its OSC Motion, as supplemented, because it met its 19 burden of proof with clear and convincing evidence of contempt. 20 According to Debtor, the spreadsheet attached to the OSC 21 Supplement (1) identified each property; (2) identified each 22 lender for that property; (3) identified the correct figures 23 that applied to each loan, including principal balances as 24 established under the plan and payment amounts; and (4) detailed 25 each and every instance where the lender failed to comply with 26 the plan with respect to its loan. Debtor also asserts that if 27 additional evidence was required to make a “prima facie” case, 28 it was never given an opportunity to provide that evidence
-24- 1 because the court did not conduct an evidentiary hearing. 2 Debtor maintains that by denying its motion for contempt, the 3 court, in essence, held that the Secured Creditors were in 4 compliance with the plan. We are not convinced. 5 Throughout the OSC proceedings, the bankruptcy court 6 applied the correct legal standard to Debtor’s contempt claims, 7 placing the burden of proof on Debtor to show by clear and 8 convincing evidence that certain Secured Creditors had violated 9 the terms of the Second Plan. Although Debtor had numerous 10 opportunities to provide such evidence, Debtor provided no 11 declaration, affidavit, or other admissible evidence showing 12 that any individual Secured Creditor failed to comply with the 13 terms of the Second Plan. Further, Debtor never sought 14 discovery nor did it seek modification of the bankruptcy court’s 15 orders during the five years the OSC Motion was pending. 16 Instead, Debtor failed to comply with the bankruptcy 17 court’s orders and instructions over a protracted period of 18 time. In April 2013, Debtor ignored the bankruptcy court’s 19 order to provide a calculation of damages by property and 20 creditor and to provide notice of the same to the non-complying 21 Secured Creditors. In July 2014, Debtor failed again to follow 22 the bankruptcy court’s instruction to update the list of non- 23 complying Secured Creditors subject to the OSC Motion, lodge an 24 order for each creditor, and serve it pursuant to the adversary 25 rules. 26 At the October 14, 2015 hearing, the bankruptcy court 27 ordered Debtor to re-file or supplement the OSC Motion with an 28 updated list of the alleged non-compliant creditors and to serve
-25- 1 it on those creditors. The bankruptcy court also ordered Debtor 2 to specify the nature and extent of each creditor’s failure to 3 comply with the plan as to each property. Although Debtor 4 supplemented its OSC Motion, its attempted compliance with the 5 bankruptcy court’s instructions was wholly inadequate. 6 The spreadsheet attached to the OSC Supplement, which 7 purportedly provided the reasons why certain Secured Lenders 8 were not in compliance with the plan, is neither verified nor 9 authenticated, and no foundation was laid for the basis of 10 Debtor’s allegations. There are no details about the underlying 11 records relied upon for the allegations of contempt nor are any 12 supporting documents attached. There was no mention of what 13 plan provision was violated. 14 Debtor alleged that a certain lender’s loan amount was 15 incorrect, but there is no evidence to support this allegation. 16 In another instance, Debtor stated that the lender had NOT paid 17 taxes (emphasis in original). However, there is no declaration 18 or document showing that the lender was obligated to pay them. 19 In short, the spreadsheet is not competent evidence of anything. 20 It clearly is not clear and convincing evidence. 21 Therefore, Debtor failed to meet its initial burden of 22 proof by showing a “high probability” that the Secured Creditors 23 knowingly violated a clear and specific order.9 Further, as the 24 bankruptcy court found, even if Debtor had met its burden under 25 the clear and convincing standard for contempt, Debtor did not 26 9 27 It also appears that the Second Plan was too vague to be understood. Eventually, the bankruptcy court entered forty-five 28 clarification orders in connection with the OSC Motion.
-26- 1 provide any evidence of damages. Accordingly, the bankruptcy 2 court did not abuse its discretion by denying Debtor’s OSC 3 Motion, as supplemented. 4 Finally, Debtor contends the bankruptcy court erred by not 5 holding an evidentiary hearing. Bankruptcy courts generally 6 enjoy broad discretion to determine whether to hold an 7 evidentiary hearing at which live testimony can be presented. 8 See Civil Rule 43(c) (made applicable in bankruptcy cases by 9 Rule 9017). The record shows that Debtor never requested an 10 evidentiary hearing nor submitted evidence in the contempt 11 proceedings which created a factual dispute for the court to 12 resolve. The bankruptcy court also gave Debtor numerous 13 opportunities to present clear and convincing evidence of 14 contempt, which it did not do; nor was there any evidence of 15 damages. The bankruptcy court did not abuse its discretion by 16 failing to hold an evidentiary hearing. 17 VI. CONCLUSION 18 For the reasons stated, we AFFIRM. 19 20 21 22 23 24 25 26 27 28
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