In re: Stephen William Sloan

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: December 15, 2022
• Docket: EC-22-1119-BSG
• Status: Unpublished

Opinion

FILED DEC 15 2022 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. EC-22-1119-BSG STEPHEN WILLIAM SLOAN, Debtor. Bk. No. 20-10809

STEPHEN WILLIAM SLOAN, Appellant, v. MEMORANDUM∗ SANDTON CREDIT SOLUTIONS MASTER FUND IV, Appellee.

Appeal from the United States Bankruptcy Court for the Eastern District of California René Lastreto II, Bankruptcy Judge, Presiding

Before: BRAND, SPRAKER, and GAN, Bankruptcy Judges.

INTRODUCTION

Appellant Stephen Sloan appeals an order overruling his objection to

the claim filed by appellee and secured creditor, Sandton Credit Solutions

Master Fund IV ("Sandton"). Specifically, Sloan challenged Sandton's claim

for postpetition interest and late charges, arguing that Sandton was not

entitled to them because its claim was undersecured. We conclude that the

∗ This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 bankruptcy court did not err in determining that Sloan was bound by the

parties' earlier agreement as to the amount of Sandton's claim and for the

accrual of postpetition interest and late charges, and therefore Sandton's

claim would be allowed in full. Accordingly, we AFFIRM.

FACTS

Sloan is a farmer and businessman and has been involved in the sale

and transfer of water for agricultural purposes in California since the 1980s.

He is the managing member and owner of 4-S Ranch Partners, LLC ("4-S").

Sandton is an investor in alternative credit opportunities, including providing

rescue finance to troubled companies.

Sloan owned agricultural property known as Hamburg Ranch, which

consists of 668 acres of almond and pistachio trees. 4-S owned 5,300 acres of

land ("4-S Property"), which it purchased for the purpose of developing a

water project. In 2017, 4-S obtained a loan from Sandton for $33,075,887.92 to

refinance the debt owed to the then-mortgage lender. The Sandton loan was

secured by deeds of trust on both Hamburg Ranch and the 4-S Property.

Sloan personally guaranteed 4-S's debt to Sandton.

After 4-S defaulted on the Sandton loan in 2018 and the parties were

unable to agree upon any further forbearance agreements, Sandton scheduled

foreclosure sales for Hamburg Ranch and the 4-S Property for March 4, 2020.

Sandton's appraisals around that time for Hamburg Ranch and the 4-S

Property valued the properties at $12.5 and $14.985 million, respectively.

To prevent the foreclosure sales, on March 2, 2020, Sloan filed two

2 chapter 111 bankruptcy cases, one individually and one on behalf of 4-S.

Sloan valued Hamburg Ranch at $16 million; he valued the 4-S Property at

$500 million.

Sandton filed proofs of claim in each case. Each claim asserted that the

debt owed was $57,264,545.53 and was partially secured; partially secured by

Hamburg Ranch in Sloan's case, and partially secured by Hamburg Ranch

and the 4-S Property in 4-S's case. In Sloan's case, the amount remaining

unsecured was $44,744,545.53, based on Sandton's appraisal for that property

at $12.5 million. In 4-S's case, the amount remaining unsecured was

$29,759,545.53, based on Sandton's appraisal for Hamburg Ranch and the 4-S

Property together at approximately $27.5 million.

Sandton filed motions for relief from stay. It argued that Sloan had no

equity in Hamburg Ranch and that it was not necessary for an effective

reorganization. Sandton made similar arguments as to 4-S. Sloan and 4-S

opposed stay relief, arguing that Sandton was oversecured and so stay relief

was not warranted. Sloan and 4-S disputed Sandton's appraisals, particularly

the one for the 4-S Property. Sloan argued that its value was not in the bare

land but rather the ability to monetize its water rights, which Sloan argued

Sandton's appraisal failed to account for. Sloan maintained that the 4-S

Property was worth $500 million, which included $200 million in water

stored there. The stay relief motions were scheduled for a two-day

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy Procedure. 3 evidentiary hearing.

Just before the stay relief hearing, Sloan, 4-S, and Sandton entered into a

stipulation, which the bankruptcy court approved on December 9, 2020

("Stipulation"). If Sloan did not pay Sandton in full by March 31, 2021,

Sandton would be granted relief from stay effective April 1, 2021, to proceed

with its foreclosure sales. The Stipulation also provided:

4-S and Sloan hereby ratify that the following sums are unconditionally and absolutely owed by them, jointly and severally, to Sandton as of December 8, 2020: Principal $52,036,600.41 Accrued Interest 7,143,777.65 Accrued Default Interest 3,048,467.95 Extension Fee 3,000,000.00 Legal and Other Costs 601,268.79 Accrued Late Charges 354,645.92 Unbilled Legal + 55,774.92 Total $66,240,535.64 For each additional day past December 8, 2020, an additional $31,537.33 will be due from 4-S and Sloan, jointly and severally, to Sandton.

Finally, the Stipulation provided that Sandton could pursue avoidance

actions in Sloan's bankruptcy case; that Sandton's deadline to object to Sloan's

discharge or the dischargeability of certain debts under §§ 523 and 727 would

be extended; and that, to avoid a contested confirmation hearing, Sloan and

4-S's proposed plans of reorganization would be amended to include

treatment of Sandton's claim consistent with the Stipulation.

Sloan did not sell or refinance the properties by March 31, 2021, and

4 Sandton foreclosed on Hamburg Ranch and the 4-S Property on April 27 and

29, 2021, respectively. Sandton purchased Hamburg Ranch with a credit bid

of $10,117,970.84; it purchased the 4-S Property with a credit bid of

$20,000,000. A total of $30,117,970.84 was applied to Sandton's claim. Sandton

promptly filed an amended unsecured proof of claim for $40,823,797.25. 4-S's

chapter 11 case was dismissed on August 10, 2021.

Sloan then proposed an amended plan of reorganization, asserting that

Sandton's unsecured claim should be only $27,146,574.69, not $40,823,797.25,

eliminating all accrued postpetition interest and attorney's fees since the

bankruptcy filing. Sloan asserted, because the value of the collateral realized

at the foreclosure sales was less than the amount owed on the claim,

Sandton's claim was undersecured and not entitled to postpetition interest.

To avoid a contested confirmation hearing, Sloan and Sandton entered

into a further stipulation for the amended plan:

Sandton contests the amount of its claim stated in paragraph 3.01 of the Plan, but understands that the Plan does not fix the amount of its claim and that there will be a separate proceeding to determine the correct amount of Sandton's claim. Except for this dispute, Sandton does not otherwise contest its proposed treatment under the Plan, and with the changes made above will vote in favor of confirmation of the Plan.

Thus, while Sandton approved the amended plan, the parties acknowledged

that the amount of Sandton's claim as stated in the plan was not dispositive

and would be decided in a later proceeding. The bankruptcy court confirmed

Sloan's amended plan on February 2, 2022.

5 Thereafter, Sloan filed an objection to Sandton's amended unsecured

claim for $40,823,797.25, raising the same arguments he did at plan

confirmation, but he now sought to disallow the claim to the extent it sought

postpetition interest and late charges (he agreed to the attorney's fees).

Accordingly, Sloan argued that the amount of Sandton's unsecured claim

should be $27,676,147.21.

Sandton opposed the claim objection, arguing that Sloan was bound by

the Stipulation in which he agreed to the amount of the claim, the accrual of

postpetition interest and late charges, and the claim's treatment under a

future chapter 11 plan. Sandton argued that even if the Stipulation was not a

binding agreement or a judicial admission, its claim could not be deemed to

be undersecured based on the sale prices of Hamburg Ranch and the 4-S

Property because sale price was not the proper measure of value.

In reply, Sloan argued that the amount stated in the Stipulation was the

"contractual amount owed" by him (and 4-S before the case was dismissed),

not the "amount of Sandton's claim" allowed in the bankruptcy, which he

argued was limited by § 506(b) to the extent the claim was undersecured.

Sloan further argued that Sandton's amended claim, which stated that its

claim was now completely unsecured, precluded Sandton from receiving

postpetition interest. Lastly, Sloan argued that the value of Sandton's

collateral should be determined as of the date of plan confirmation. Since the

properties were foreclosed upon before confirmation, no further collateral

existed to secure Sandton's claim. Consequently, argued Sloan, Sandton's

6 claim was treated as an unsecured claim and not entitled to postpetition

interest.

Finding that Sloan was bound by the Stipulation, which confirmed

Sandton's right to postpetition interest and late charges, the bankruptcy court

overruled Sloan's claim objection and allowed Sandton's claim in the amount

of $40,823,797.25. Sloan timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Did the bankruptcy court err in overruling Sloan's claim objection with

respect to Sandton's postpetition interest and late charges?

STANDARDS OF REVIEW

Claims objection appeals can involve both legal and factual issues. We

review the legal issues de novo and the factual issues for clear error. Veal v.

Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir. BAP

2011). Whether the bankruptcy court identified and applied the correct

burden of proof is a question of law we review de novo. Margulies Law Firm v.

Placide (In re Placide), 459 B.R. 64, 71 (9th Cir. BAP 2011). Whether the

evidence sufficiently rebutted the evidentiary presumption under Rule

3001(f), however, is a question of fact reviewed for clear error. Garner v. Shier

(In re Garner), 246 B.R. 617, 619 (9th Cir. BAP 2000) (citing Sierra Steel, Inc. v.

Totten Tubes, Inc. (In re Sierra Steel, Inc.), 96 B.R. 275, 277 (9th Cir. BAP 1989)).

7 De novo review means that we review the matter anew, as if the

bankruptcy court had not previously decided it. Francis v. Wallace (In re

Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014). Factual findings are clearly

erroneous if they are illogical, implausible, or without support in the record.

Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).

"We may affirm on any ground supported by the record, regardless of

whether the bankruptcy court relied upon, rejected, or even considered that

ground." Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125

(9th Cir. 2014) (cleaned up).

DISCUSSION

A. Legal standards for claims litigation

A claim is deemed allowed absent objection from a party in interest.

§ 502(a). A procedurally compliant proof of claim is prima facie evidence of

the validity and amount of the claim. Rule 3001(f).

To defeat a prima facie valid claim under section 502, the objector must come forward with sufficient evidence and show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves. If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the claim by a preponderance of the evidence. The ultimate burden of persuasion remains at all times upon the claimant.

In re Placide, 459 B.R. at 72 (cleaned up). But if the objecting party does not

rebut the presumption of prima facie validity, the claims litigation ends there,

and the claim should be allowed without any further burden on the claimant 8 to demonstrate its validity. Nations First Cap., LLC v. Decembre (In re Nations

First Cap., LLC), BAP No. EC-19-1201-GLB, 2020 WL 3071983, at *7 (9th Cir.

BAP June 5, 2020) (citation omitted), aff'd, 851 F. App'x 32 (9th Cir. 2021).

B. The bankruptcy court did not err in overruling Sloan's claim objection with respect to Sandton's postpetition interest and late charges.

Sloan spends much of his opening brief arguing that Sandton was not

entitled to postpetition interest because its claim was undersecured. He also

argues that the time for valuing Sandton's collateral was at plan confirmation

or the claim objection, and since there was no collateral at either of those

times because the properties had been sold, Sandton's claim was unsecured

and not entitled to postpetition interest or late charges. These arguments are

red herrings. Sloan was bound by the Stipulation in which he agreed that

Sandton's claim was fully secured and subject to the accrual of postpetition

interest and late charges. While Sloan tries to argue that he was only agreeing

to the amount of the debt and not the claim, that the Stipulation provided

Sandton with postpetition interest was at least an implicit admission that its

claim was fully secured, and the Stipulation further provided that Sandton's

claim would be treated as such in a future chapter 11 plan.

The bankruptcy court overruled Sloan's claim objection, finding that he

had unequivocally agreed in the Stipulation as to the amount and treatment

of Sandton's claim. Sloan agreed, as of December 8, 2020, he "unconditionally

and absolutely owed" Sandton the sum of $66,240,535.64, which included

postpetition interest and late charges, and that he would owe Sandton an 9 additional daily sum of $31,537.33 thereafter, representing the postpetition

interest and late charges on the total amount owed. At the time of the

Stipulation, it was unknown whether Sandton was over- or undersecured.

Sloan argued that Sandton was oversecured; Sandton argued the opposite.

But the court found that the Stipulation was essentially an agreement

between the parties as to the value of the collateral and that Sandton was

fully secured. And while Sloan could have requested a valuation

determination in the context of his claim objection as allowed by Rule 3012,

the court noted that he did not ask for one; he simply argued that Sandton

was not entitled to postpetition interest and late charges because its claim

was unsecured.

Postpetition interest and late fees were charged by Sandton up until

Hamburg Ranch and the 4-S Property were sold, at which point those charges

ceased. Sandton's amended claim was consistent with the Stipulation and the

sales results. Because it was agreed in the Stipulation that Sandton was fully

secured, Sandton's claim accrued postpetition interest and late charges at the

daily rate up until the foreclosure sales. Sandton's amended claim accounted

for the credit bids at the foreclosure sales and deducted those amounts from

the total amount accrued up to the sale dates of April 27 and 29, 2021. The

remaining balance of $40,823,797.25 stated in the amended claim was

unsecured. As Sandton's counsel noted at the claim objection hearing, the

amended unsecured claim was simply a reflection of what occurred at the

foreclosure sales; Sandton was not changing the agreement as to what

10 amount was due nor waiving its right to the agreed postpetition interest and

late charges.

Sloan then tried to change the parties' agreement embodied in the

Stipulation when it became clear he had made a bad deal. In his amended

plan, Sloan asserted that Sandton's claim should be approximately $27

million and not $40 million, eliminating all of Sandton's postpetition interest

and late charges accrued after the petition date and up until the foreclosure

sales. Sandton disputed Sloan's new position, but to avoid a contested plan

confirmation hearing, which clearly benefitted Sloan, the parties agreed to

add a provision to the plan acknowledging that the plan did not fix the

amount of Sandton's claim and that there would be a separate proceeding to

determine the correct amount. That apparently was the claim objection.

There, Sandton correctly asserted, and the bankruptcy court correctly found,

that Sloan was bound by the Stipulation.

Sloan argues that he was not bound by the Stipulation because the

value determined was in the context of stay relief, and case law holds that a

valuation in the context of a stay relief matter is not binding on the parties for

purposes of § 506(a). First, as the bankruptcy court correctly observed, no one

requested a valuation of Sandton's collateral under § 506(a) at any time prior

to foreclosure or plan confirmation, and Sloan did not request one in his

claim objection. Second, as the bankruptcy court also correctly observed, the

Stipulation did more than simply determine the value of Sandton's claim for

purposes of stay relief. It also determined the amount of the claim, provided

11 for consistent plan treatment, provided Sandton with the right to pursue

avoidance actions, and extended the deadline for Sandton to file any §§ 523 or

727 actions. In short, the Stipulation resolved issues in the case and provided

a path to confirmation.

In addition, nothing in the Stipulation indicates that the parties'

representations as to the amount owed by Sloan was limited solely to the

context of stay relief. Sandton also acted in reliance on the Stipulation in the

context of plan confirmation; it did not object and voted for the plan. Sloan

fails to acknowledge that in exchange for the Stipulation he got nearly four

more months to try to sell the properties or refinance the Sandton loan, he

avoided a two-day stay relief evidentiary hearing, and he avoided a contested

plan confirmation hearing.

The bankruptcy court did not articulate that Sloan had failed to

sufficiently rebut the presumption as to the prima facie validity and amount

of Sandton's claim as the basis for overruling his claim objection. However,

we can conclude that was the case given the Stipulation. Therefore, it did not

err in allowing Sandton's claim for $40,823,797.25, to include postpetition

interest and late charges.

CONCLUSION

For the reasons stated above, we AFFIRM.