This is an appeal from the bankruptcy court's approval of a settlement between the chapter 11
After the settlement was approved by the bankruptcy court, certain events transpired with respect to the property, including the transfer of title, sale, subsequent flood and fire damage, and payment of taxes and escrow fees. Additionally, third parties in this bankruptcy case and in related bankruptcy cases were affected by or acted in reliance on the settlement. As a result, this appeal is now moot.
However, in the event we are incorrect in our determination that the appeal is moot, we have analyzed the merits and would affirm the bankruptcy court because it applied the appropriate factors in deciding that the settlement agreement was fair, reasonable and equitable. Because the Appellants offered no valid basis as to why the bankruptcy court should have reconsidered its decision approving the settlement, we would also affirm the bankruptcy court's order denying the Appellants' motion to reconsider.
The Debtor is a California company whose president, sole shareholder, director and CFO is Ezri Namvar (Namvar). The Debtor's business for the last 20 years has been to raise money from investors in order to acquire real estate for development in California, Nevada and Arizona. Investors were paid a fixed rate of return or provided promissory notes, and in exchange, Namvar-controlled entities developed, managed and/or sold the developments.
Boucherian lent the Debtor significant sums of money over several years. In December 2007, the Debtor executed a promissory note (the Namco Note) in the amount of $14.5 million in favor of Boucherian. Namvar personally guaranteed the Namco Note. In July 2008, the Namco Note was increased to $16.5 million. Part of the Namco Note ($7 million) is secured by property in Las Vegas (the Las Vegas Collateral). The other $9.5 million is secured by notes and security interests collaterally assigned by the Debtor to Boucherian (the Collateral Assignments).
The Collateral Assignments consist of the following notes secured by deeds of trust on undeveloped real property in Arizona—one parcel, the Club Rio Property, owned by Namwest Town Lakes (NTL) and an adjoining parcel, the Wilde Property owned by Namwest Town Lakes II (NTL II).
The notes secured by deeds of trust on the Club Rio Property are:
The notes secured by deeds of trust on the Wilde Property are:
NTL II, along with a related entity, Namwest LLC, (Namwest),
In 2008, the Debtor did not make required interest payments on the Namco Note. Boucherian demanded payment in full but the Debtor did not repay the loan. In November 2008, Boucherian commenced an action to sell the Las Vegas Collateral and the Collateral Assignments at a public sale. Boucherian completed the sale of the Las Vegas Collateral; however, the sale of the Collateral Assignments was not completed, in part because Namwest and NTL II filed bankruptcy and initiated an adversary proceeding
The Appellants are Arizona Tempe Town Lake, LLC (ATTL), Business To Business Markets, Inc. (B2B), and Theodore Kohan (Kohan), collectively, the Kohan Group. Kohan is the president of B2B and the managing member of ATTL.
The Kohan Group alleges it has a right to a 27% equity interest in either NTL or NTL II based on its contention that in 2004, it entered into an agreement to assign the right to purchase the Club Rio Property to a Namvar-created entity. The Kohan Group claims that it was orally promised by Namvar a 27% membership interest in any entity that would ultimately own and develop the Club Rio Property and any adjacent properties (e.g., the Wilde Property).
As part of this transaction, NTL was created to exercise the purchase option for the Club Rio Property. The money to acquire the Club Rio Property was purportedly provided to NTL by the Debtor and resulted in the $2.78 million note and deed of trust from NTL to the Debtor. According to the Kohan Group, ATTL was originally a member of NTL but was removed before NTL acquired the Club Rio Property.
In 2005, Namvar created NTL II to acquire the adjacent property, the Wilde Property. The Kohan Group contends it is also entitled to a 27% equity interest in NTL II as part of the transaction that assigned the Club Rio Property purchase option to NTL. However, no Kohan-related entity became a member of NTL II. In late 2005-early 2006, NTL II acquired the Wilde Property and as part of that acquisition executed the $6 million note and deed of trust in favor of the Debtor.
The Kohan Group's claim to an equity interest fuels the litigation here, as well as litigation in the Arizona state court
Namwest is the managing member of approximately 10 entities jointly administered in the Namwest Bankruptcy. Namwest is jointly owned by SWB Enterprises, LLC (SWB) and Beshmada, LLC (Beshmada). Namvar's children are the members of Beshmada.
The major asset of the Namwest Bankruptcy is the Wilde Property. The value of the Wilde Property is significantly enhanced by its development in conjunction with the Club Rio Property, as one parcel has road access and the other has lake access.
There are two settlement agreements approved by the Arizona bankruptcy court that impact the Collateral Assignments, the Club Rio Property, the Wilde Property, and the settlement agreement in this appeal. The first settlement agreement was approved by an order entered on March 19, 2009, by the Arizona bankruptcy court and is referred to in the Trustee's and Boucherian's briefs, and here, as the February 2009 Agreement. One of the issues resolved by the February 2009 Agreement was a dispute between Namwest and its manager, Beshmada, regarding the validity of the $13 million all-inclusive NTL II note and deed of trust, which was collaterally assigned to Boucherian. Namwest had argued that anything over $4 million was invalid because only $4 million was actually advanced by Namco to NTL II.
The February 2009 Agreement resolved the issue by providing that Boucherian could enforce the full amount of the $13 million all-inclusive collaterally assigned note if she met certain conditions, one of which was providing debtor-in-possession financing to NTL II in order to complete the entitlement and zoning for the Wilde Property. The February 2009 Agreement was approved by the Arizona bankruptcy court over the Kohan Group's objection. It was not appealed and is final.
The second settlement agreement was proposed in November 2009 (the November 2009 Agreement), although the order approving the settlement was not entered by the Arizona bankruptcy court until March 29, 2010.
The November 2009 Agreement was between Namwest, NTL II and Boucherian. Pursuant to the November 2009 Agreement, the parties agreed, based in part on the February 2009 Agreement, that Boucherian was a holder in due course with respect to the $13 million (inclusive of the $6 million) collaterally assigned note secured by the Wilde Property. Namwest agreed to abandon its claims in the two adversary proceedings, including the adversary that alleged the notes and security interests pledged by NTL II to the Debtor were not based on adequate consideration or were fraudulent transfers.
Namwest also agreed to sell Boucherian its membership interest in NTL II for $500,000 and Boucherian's payment of certain creditors' claims of NTL II. The parties agreed to thereafter dismiss the NTL II bankruptcy case. The Arizona bankruptcy court approved the November 2009 Agreement over the objection of the Kohan Group but subject to the Kohan Group's disputed claim of a 27% membership interest in NTL II. That order was not appealed and is final.
These two settlement agreements are significant because after the February 2009 Agreement, and certainly after the November 2009 Agreement, attacks on the validity of the $13 million all-inclusive note that was collaterally assigned to Boucherian were resolved. Thereafter, the allegations by the Kohan Group regarding fraud with respect to the Collateral Assignments could only apply to the NTL $27 million note and deed of trust. Nevertheless, the Kohan Group repeatedly conflates its arguments concerning the Debtor's lack of consideration for the $13 million all-inclusive note with the $27 million note, and then further conflates the validity of those notes with the validity of the Namco Note. Significantly, however, the Kohan Group has never denied that Boucherian lent the Debtor significant sums of money.
On December 22, 2008, involuntary bankruptcy petitions were filed against both the Debtor and Namvar. The orders for relief were entered January 29, 2009.
In July 2009, Boucherian filed a motion for relief from stay against the Debtor in order to complete the sale of the Collateral Assignments. To resolve the motion, the Trustee negotiated (for over five months and at the same time as the November 2009 Agreement was being negotiated) a settlement agreement with Boucherian (the Settlement Agreement) that provided for the sale/transfer of the Collateral Assignments and ultimate sale of the Club Rio Property to Boucherian. The Settlement Agreement proposed:
(1) to transfer, assign and convey the Collateral Assignments free and clear to Boucherian;
(2) that Boucherian would foreclose on the $27 million deed of trust against the Club Rio Property, or, that the Trustee would take steps to obtain title to the Club Rio Property by either accepting a voluntary transfer of a deed from NTL or by subordinating the Debtor's $2.78 million deed of trust to Boucherian's collaterally assigned $27 million deed of trust and foreclosing on the $2.7 million deed of trust. The Trustee would then convey the Club Rio Property to Boucherian free and clear of all rights, titles and interests;
(3) the payment of $2.2 million by Boucherian to the estate if she acquired the Club Rio Property free and clear of all interests and liens within two years from the date of the Settlement Agreement and payment of an additional $4.35 million to the estate if Boucherian acquired and sold both the Club Rio Property and the Wilde Property within a specified time;
(4) the payment by Boucherian of $450,000 to NTL II to obtain development entitlements, consistent with the February 2009 Agreement and November 2009 Agreement;
(5) the release of Boucherian's claims against Namvar on his guaranty obligation; and,
(6) the release of Boucherian's claims against the Debtor, including the right to payment of the Namco Note.
On November 3, 2009, the Trustee filed and served its motion for approval of the Settlement Agreement and set the hearing for November 24, 2009 (Motion to Approve). Boucherian joined in that motion.
On November 10, 2009, the Kohan Group filed an opposition (Opposition). The Opposition requested that the Motion to Approve be continued so that the Kohan Group could complete discovery in the Namwest Bankruptcy. The Kohan Group asserted that pending litigation in the Namwest Bankruptcy was "poised to resolve the disputed validity of the Boucherian deeds of trust."
The Trustee and Boucherian each filed replies on November 17, 2009. The Kohan Group filed an ex-parte motion for a continuance of the hearing on November 19, 2009, which the Trustee and Boucherian opposed. The Kohan Group re-asserted its position that it needed a continuance in order to conduct discovery regarding the validity of the notes and deeds of trust included in the Collateral Assignments.
The Trustee and Boucherian each filed extensive evidentiary objections to the declarations submitted by the Kohan Group with the Opposition, contending that many statements contained in the declarations were irrelevant, lacked foundation, or were improper legal opinions or conclusions.
The bankruptcy court held a hearing on the Motion to Approve on November 24, 2009. At the hearing, the bankruptcy court denied the motion to continue, sustained the Trustee's and Boucherian's evidentiary objections and approved the Settlement Agreement. The bankruptcy court entered its findings of fact and conclusions of law along with its order approving the Settlement Agreement on February 21, 2010 (the Settlement Order). The Settlement Order did not validate any of the Collateral Assignments or rights of non-parties to the Settlement Agreement.
The Kohan Group filed a motion to alter or amend the Settlement Order on March 8, 2010 (the Motion to Reconsider). The Kohan Group argued that it had discovered new evidence to disprove the Trustee's assertion that he had investigated and determined that there was no basis to avoid the Collateral Assignments.
Boucherian filed an opposition to the Motion to Reconsider on March 15, 2010, which the Trustee joined. The Kohan Group filed supplemental declarations, a reply, and evidentiary objections to declarations contained in Boucherian's and the Trustee's oppositions. On March 30, 2010, the bankruptcy court entered an order denying the Motion to Reconsider (Reconsideration Order). The Kohan Group timely appealed.
On April 16, 2010, the Kohan Group filed a motion with the Bankruptcy Appellate Panel (BAP) requesting a stay pending appeal. On April 19, 2010, the BAP denied the motion. On August 4, 2010, the Trustee and Boucherian filed with the BAP a joint motion to dismiss the appeal as moot. The Kohan Group opposed the motion on August 27, 2010. The Panel has elected to address the motion to dismiss in this Memorandum Decision.
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(A). We address our jurisdiction under 28 U.S.C. § 158 below.
Whether the appeal is moot is a question of law that we address de novo.
The bankruptcy court's approval of a compromise or settlement agreement is reviewed for an abuse of discretion.
In determining whether the bankruptcy court abused its discretion, we first "determine de novo whether the [bankruptcy] court identified the correct legal rule to apply to the relief requested."
We lack jurisdiction to hear a moot appeal.
It is difficult to see what relief might be granted if we were to reverse the Settlement Order since after the Settlement Order was entered, the Trustee (1) subordinated its $2.78 million deed of trust to Boucherian's $27 million deed of trust, (2) obtained title to the Club Rio Property from NTL, (3) foreclosed on the $2.78 million deed of trust, (4) assigned its interest in the $27 million deed of trust to Boucherian, and (5) sold the Club Rio Property to Boucherian.
Additionally, Boucherian paid the Trustee $2.2 million and entered (with significant expenditures) into agreements with several third parties to complete entitlements on the Club Rio Property, change the zoning, and market it for sale.
The Kohan Group argues that any money spent by Boucherian in connection with the Club Rio Property could be easily recovered and returned. This argument is disingenuous. Boucherian has paid a number of third parties for expenses related to the Club Rio Property including taxes and expenses incurred as a result of flood and fire damage. The Kohan Group fails to explain what jurisdiction the bankruptcy court would have to order those parties to return payments to Boucherian if we were to reverse the Settlement Agreement.
Additionally, consistent with the Settlement Agreement, a settlement agreement between Boucherian and Namvar was entered in the Namvar bankruptcy case that released Boucherian's approximately $17 million claim on Namvar's guaranty of the Namvar Note. The order approving that settlement is final and not appealed and the creditors of the Namvar estate have relied on that finality.
The November 2009 Agreement (negotiated at the same time as the Settlement Agreement) was entered into by Boucherian, Namwest and NTL II in conjunction with and in reliance on this Settlement Agreement so that the issues regarding all the Collateral Assignments would be fully resolved. The order approving that agreement is final.
Thus, the appeal is constitutionally moot and we lack jurisdiction over the aspects of the bankruptcy court's orders that affect third parties not parties to this appeal. As to those aspects of the order that involve only the parties to the appeal, the appeal is equitably moot. The doctrine of equitable mootness has been applied when the appellant has failed to obtain a stay and although relief may be possible, the ensuing transactions are too complex or difficult to unwind.
As discussed, the changes that have taken place since the Settlement Order was entered are numerous. Third parties, including escrow and taxing agencies, NTL, Namwest, NTL II, Namvar and Namvar's creditors have all entered into transactions in reliance on the Settlement Order.
There is no question that the November 2009 Agreement is final and, therefore, the sale of the Wilde Property and validation of the Collateral Assignments secured by the Wilde Property cannot possibly be undone. As to the Club Rio Property, events have transpired since the Settlement Order and many third parties have either acted in reliance on the Settlement Agreement or have been affected by the Settlement Agreement. Therefore, because this case "present[s] transactions that are so complex or difficult to unwind," the doctrine of equitable mootness applies.
However, in the event we are mistaken in our conclusion that the appeal is moot, the appeal nevertheless fails on its merits.
Rule 9019(a) provides that the bankruptcy court may approve a compromise or settlement upon a motion of the trustee and after a hearing on twenty-one days' notice to all creditors and the U.S. Trustee. Rule 2002(a)(3).
The Trustee, as the party proposing the Settlement Agreement, had the burden of demonstrating that the Settlement Agreement was fair, reasonable and equitable.
Furthermore, the Trustee determined that the estate would unlikely be able to enforce the $27 million note against the Club Rio Property because NTL had potentially valid defenses, such as its assertion that the note lacked consideration. Therefore, the probable payment by Boucherian of $2.2 million (and possible payment of $6.55 million) along with the release of her $9.5 million claim against the estate under the Settlement Agreement was a beneficial compromise for the estate and its creditors.
The Kohan Group argued the Settlement Agreement was not fair or equitable because it "effectively legitimize[d] fraudulent liens." The Kohan Group claimed that the underlying debt obligations supporting the Collateral Assignments were obtained without consideration. The Kohan Group alleged that it was prejudiced by the Settlement Agreement and contended that it could offer the estate a better deal by paying $2.3 million for the Club Rio Property.
"[W]hile creditors' objections to a compromise must be afforded due deference, such objections are not controlling, and while the court must preserve the rights of creditors, it must also weigh certain factors to determine whether the compromise is in the best interest of the bankrupt estate."
Here, the bankruptcy court considered the probability of success in litigation, the complexity of the issues involved, the difficulties the Debtor would have collecting on the underlying notes and deeds of trust and, ultimately what would be in the best interests of the creditors.
The bankruptcy court found that rather than the Trustee engaging in potentially unsuccessful costly litigation (1) with Boucherian over the Collateral Assignments, (2) with NTL regarding the validity of its $27 million note in favor of the Debtor, or (3) over the value of the Club Rio Property, it would be easier, less expensive, and more beneficial to the estate if the Trustee entered into the Settlement Agreement because he would likely net the estate more money than it otherwise could receive — $2.2 million and possibly $6.55 million — and the release of a $9.5 million claim.
The bankruptcy court found that the Debtor would have difficulty enforcing the $27 million note and trust deed against the Club Rio Property because it was unclear if there was adequate evidence to support the increase of NTL's obligations to the Debtor from $2.78 million to $27 million. It found that Boucherian had demonstrated her financial ability to perform under the terms of the Settlement Agreement. Additionally, it found that any offer presented by the Kohan Group would not immediately afford the estate the same releases or benefit because even if the Kohan Group paid the same amount, it could not provide the estate with a release of Boucherian's $9.5 million claim. Thus, the bankruptcy court found that the transfer of the Collateral Assignments and the ultimate sale of the Club Rio Property to Boucherian was in the best interest of the estate and its creditors because it maximized value to the estate. Additionally, the Settlement Agreement would benefit creditors of Namvar's bankruptcy estate because Boucherian's claim on the $17 million guaranty of the Namvar Note would be released.
At the hearing on the Motion to Approve, the bankruptcy court correctly determined that the Kohan Group's allegations of fraud were not relevant to the Settlement Agreement because they related to the Kohan Group's contention that the $13 million all-inclusive note and deed of trust secured by the Wilde Property was unsupported by consideration;
The Kohan Group's opposition to the Settlement Agreement was based on the conflation of its position as a disputed equity member of NTL with its position as creditor of the bankruptcy estate (which is tenuous at best).
The Kohan Group did not challenge the Debtor's obligation to Boucherian, except to suggest, in its Motion to Reconsider, that Boucherian
The record demonstrates that the bankruptcy court had "spent a lot of time" on the issue. Hr'g Tr. (November 24, 2009) at 3:17-18. It took an active role at the hearing on the Motion to Approve to inquire about the Trustee's proposals and the Kohan Group's objections. The bankruptcy court made an informed and independent decision to approve the Settlement Agreement consistent with the analysis required in the Ninth Circuit by
The Kohan Group requested a continuance of the Motion to Approve because (1) the Settlement Agreement was lengthy and complex; (2) it needed time to conduct discovery in the Counterclaim Litigation to address the Trustee's assertion that there was no valid basis to avoid the Collateral Assignments.
A bankruptcy court's denial of a continuance and its discovery decisions are reviewed for an abuse of discretion.
The bankruptcy court found that the Settlement Agreement was straight-forward and not complex. Furthermore, the bankruptcy court found that there was no assurance that anything would be accomplished by the end of the Kohan Group's discovery that would affect whether the Settlement Agreement was beneficial to the estate and its creditors. We see no error in its findings. As noted above, the Counterclaim Litigation was about the Kohan Group's alleged equity interest in NTL II and tangentially about the validity of the $13 million note, not about the Namco Note. Discovery in the Counterclaim Litigation, therefore, would have been of little use in evaluating the Trustee's assertions that the Collateral Assignments were valid.
Indeed, the Kohan Group did not indicate how additional time and investigation would yield evidence to challenge the Namco Note or the Collateral Assignments that secured it. It only continued to assert that discovery in the Counterclaim Litigation (to which the Debtor and Boucherian were not parties) would yield evidence to contest the validity of the debt obligations between NTL II and the Debtor based on its allegation that the Debtor did not provide consideration for the notes and trust deeds that it then collaterally assigned to Boucherian.
Even if this were true, as we noted above, there would be no reasonable probability that the outcome (the approval of the Settlement Agreement) would be different.
Because the bankruptcy court's findings are supported by the record and are not illogical or implausible, the bankruptcy court did not abuse its discretion in denying the Kohan Group's request to continue the Motion to Approve.
Evidentiary rulings are reviewed for an abuse of discretion.
There is no error unless the exclusion of evidence is prejudicial.
The Kohan Group moved for reconsideration of the bankruptcy court's order approving the settlement agreement. The Kohan Group based its motion on Fed. R. Civ. P. 59(e). The bankruptcy court has wide discretion in deciding whether to reconsider its own judgment or orders. A motion for reconsideration should not be granted absent highly unusual circumstances.
If the motion is based on newly discovered evidence, the movant must show that: (1) the evidence was discovered after the hearing; (2) the exercise of due diligence would not have resulted in the evidence being discovered at an earlier stage; and (3) the newly discovered evidence is of such magnitude that producing it earlier would likely have changed the outcome of the case.
The Kohan Group asserted that the new evidence it discovered revealed that "Namvar arranged to place bogus deeds of trust [on property] for the purpose of `credit enhancement' or `collateral enhancement' . . . to enhance Namvar's balance sheet. Appellants' Opening Br. at 29. The Kohan Group contended that it had evidence of Namvar's fraudulent scheme and asserted that it had evidence to demonstrate Boucherian's signature on some of the documents related to her $9.5 million claim against the Debtor "appeared to be fraudulent." Thus, the Kohan Group suggested that the Trustee failed to "examine the possibility that . . . Boucherian might only have been used as a straw [sic] to launder Namvar's ill-gotten gains." Motion to Reconsider at 10. As discussed above, even if this evidence were more than speculative, none of it would make the Settlement Agreement any less attractive to the estate or its creditors.
Additionally, the Kohan Group asserted that the bankruptcy court's approval of the Settlement Agreement was manifestly unjust because (1) the request for a continuance was denied; (2) the Settlement Agreement was tantamount to allowing Boucherian to credit bid her disputed lien; (3) the Settlement Agreement did not provide the Kohan Group with adequate protection; (4) the bankruptcy court failed to articulate why the evidentiary objections were sustained; and (5) the Kohan Group proposed a better offer for the estate.
A motion for reconsideration is not permitted to rehash the same arguments made the first time or to simply express an opinion that the bankruptcy court was wrong; or, to assert new legal theories that could have been raised before the initial hearing.
In its Motion to Reconsider, the Kohan Group simply asserted that "a blanket ruling is improper and affords no meaningful basis for review." Motion to Reconsider at 18. However, it did not argue that the ruling prejudiced it in any way.
The Kohan Group argued, for the first time in the Motion to Reconsider, that the bankruptcy court committed clear error because the Settlement Agreement improperly allowed Boucherian, as a holder of a purportedly disputed secured claim, to exercise § 363(k) credit bid rights. To the extent there is any merit in that assertion, it should have been raised in the Kohan Group's Opposition. If it had been, it would not have prevailed because Boucherian does not hold a disputed claim. The Trustee did not dispute Boucherian's claim or object to it; and, the Kohan Group's objections to the Collateral Assignments was based on the validity of the underlying notes and deeds of trust rather than on objections to the Namco Note. Furthermore, there is no evidence that Boucherian exercised any credit bid rights.
Thus, the assertion that Boucherian exercised credit bid rights appears to be nothing more than an attempt by the Kohan Group to assert that its offer to pay the estate slightly more than the $2.2 million that Boucherian agreed to pay was a "higher and better bid" that should have been accepted by the bankruptcy court in lieu of approving the Settlement Agreement. However, the Settlement Agreement was not a simple sale of estate assets. It was an agreement whereby Boucherian agreed to release her $9.5 million claim and to pay the estate not less than $2.2 million, subject to the occurrence of certain conditions including a sale/transfer to Boucherian of the Club Rio Property. As the bankruptcy court noted, the payment by the Kohan Group of $2.3 million would not have provided the same benefits as the Settlement Agreement because the Kohan Group could not release Boucherian's claims against the estate.
The bankruptcy court also rejected the Kohan Group's argument, raised for the first time in its Motion to Reconsider, that it was entitled to adequate protection. The Kohan Group did not have an interest in the notes and deeds of trust pledged in the Collateral Assignments. Therefore, it was not entitled to adequate protection as a secured creditor under § 363(e). The Settlement Agreement did not involve the sale of any equity interests to Boucherian and left the Kohan Group's claims to such interests, if any, unaffected.
The bankruptcy court found that the Kohan Group provided no cause to reconsider its Settlement Order. That finding was neither illogical, implausible, nor without support in the record. Accordingly, the bankruptcy court did not abuse its discretion in denying the Motion to Reconsider.
We DISMISS the appeal as moot. However, if we are incorrect in our determination that the appeal is moot, we would affirm the bankruptcy court's Settlement Order and Reconsideration Order.
The Kohan Group filed a counterclaim against Namwest, NTL and NTL II. The Kohan Group disputed the existence of Namwest's option and asserted several tort claims associated with its claim to a 27% equity interest in NTL and/or NTL II.
