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

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: July 16, 2013
• Docket: AZ-12-1626-JuTaAh
• Status: Unpublished

Opinion

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.

-3- 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.

-4- 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.

-7- 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

-10- 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

-12- 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

-13- 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

-14- 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

-17- 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

-18- 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

-19- 1 plan met the requirements for feasibility under § 1129(a)(11).10 2 VI. CONCLUSION 3 For the reasons stated, we AFFIRM. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 10 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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