NOT FOR PUBLICATION

ORDER DENYING MOTON AUTHORIZING USE OF ESTATE FUNDS OTHER THAN IN THE ORDINARY COURSE OF BUSINESS

ROBERT KWAN, Bankruptcy Judge.

Pending before the court is the motion of Debtor Peter G. Kudrave Authorizing Use of Estate Funds Other Than in the Ordinary Course of Business, filed on July 11, 2017 (Docket No. 18). David A. Tilem, of the Law Offices of David A. Tilem, represents Debtor. Debtor filed a declaration that no party requested a hearing on the Motion pursuant to Local Bankruptcy Rule 9013-1 (o) (3), filed on July 28, 2017 (Docket No. 28).

The court having considered the moving papers and arguments from counsel contained therein,

IT IS HEREBY ORDERED:

1. The motion authorizing use of estate funds other than in the ordinary course of business is hereby denied without prejudice.

2. The motion is denied because "Debtor requests, under Section 363 (b) [of the Bankruptcy Code, 11 U.S.C.], that he be permitted to retain full and unfettered use of his postpetition income." Motion at 6 and 7. Alternatively, Debtor requests that he be allowed to use estate funds other than the ordinary course of business on a monthly budget as set forth on Exhibit A to the Motion, which were copies of his Schedule I:Your Income and Schedule J:Your Expenses, subject to a 15% variance. Id. at 7. Debtor argues that there are no standards governing an individual Chapter 11 debtor's use of estate funds, including his postpetition income now included in the estate pursuant to 11 U.S.C. § 1115 added by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), to pay living expenses during the case if such expenses are not in the ordinary course of business within the meaning of 11 U.S.C. § 363 (b) (1). Id. at 5. Based on the court's reading of the Motion, Debtor seems to assume that use of estate funds to pay personal living expenses is always outside the ordinary course of business.

This may not be the case. Recently, a district court in Maryland observed that "some bankruptcy courts have found that individuals operating as Chapter 11 debtors-in-possession may use estate property on personal expenses without notice and a hearing so long as such expenses are in the `ordinary course' rather than unusual or extraordinary." In re Massenburg, 554 B.R. 769, 775 (D. Md. 2016), citing, In re Seely, 492 B.R. 284, 290 (Bankr. C.D. Cal. 2013) (Bluebond, J.) and In re Bradley, 185 B.R. 7, 8-9 (Bankr. W.D.N.Y. 1995). Judge Bluebond in her opinion in Seely stated that an individual Chapter 11 debtor may use estate funds without court approval to pay for living expenses so long as such expenses were in the "ordinary course." 492 B.R. at 290. However, ordinary course means ordinary course. See In re Dant & Russell, Inc., 853 F.2d 700, 704-705 (9th Cir. 1988) (setting for a two-part legal standard for ordinary course of business); accord, In re Straightline Investments, Inc., 525 F.3d 870, 879 (9th Cir. 2008). Contrary to Debtor's assertions, there are standards under 11 U.S.C. § 363 (b) (1), and these are the standards, based on controlling circuit precedent, which does not make any exception for individual Chapter 11 debtors. Debtor cites no authority to support his argument that there are no standards, and implicitly, that existing circuit precedent does not control here.

Moreover, if the use of estate funds to pay Debtor's living expenses is not in the "ordinary course," such use is subject to the general requirements of 11 U.S.C. § 363 (b) (1) and applicable case law. Id. That is, if the proposed use of estate funds for personal living expenses is not within the ordinary course of business, a debtor-in-possession (or trustee) may use, sell or lease estate property only after notice and a hearing and upon a showing of the exercise of reasonable business judgment for such use outside the ordinary course of business. See, In re Mark Vincent Kaplan, No. 2:15-bk-16187 RK Chapter 11 (Bankr. C.D. Cal., order filed and entered on June 11, 2015) (Kwan, J.) (copy attached hereto), citing, 3 March, Ahart and Shapiro, California Practice Guide: Bankruptcy, ¶¶ 14:75 and 14:595 at 14 (I)-6 and 14 (I) at 49 (2014), citing inter alia, In re Lionel Corp., 722 F.2d 1063, 107 (2nd Cir. 1983) and In re Ernest Home Ctr., Inc., 209 B.R. 974, 979 (Bankr. W.D. Wash. 1997).

This court in In re Kaplan noted that in In re Villalobos, 2011 WL 4485793 (9th Cir. BAP 2011) (unpublished memorandum opinion), the Bankruptcy Appellate Panel of the Ninth Circuit reversed the order of the bankruptcy court approving the individual Chapter 11 debtor's personal living expenses on grounds that the bankruptcy court failed to issue sufficient findings of fact and conclusions of law to support approval or disapproval of the expenses in the debtor's proposed budget as well as to support the approval of the debtor's budget nunc pro tunc to the petition date. In re Mark Vincent Kaplan, slip op. at *4, citing, In re Villalobos, 2011 WL 4485793, slip op. at **8-9 and n.13. The Bankruptcy Appellate Panel of the Ninth Circuit in In re Villalobos stated: "[g]iven the uncertainty in this area of the law [i.e., post-BAPCPA], the identification of the proper Bankruptcy Code section for approval of personal expenses of individual Chapter 11 debtors, it is all the more important for the bankruptcy court to articulate the legal rule being applied and the explicit findings of fact that support the legal rule." Id., slip op. at *9.

As to Debtor's first request for authorization of full and unfettered use of his postpetition income, the court determines that such blanket use of estate funds for whatever purpose of Debtor's choosing does not meet the standards of 11 U.S.C. § 363 (b) (1) and should be denied because such use may well include out of ordinary course of business expenditures without satisfying the requirements of that statute requiring court review and approval and evidence demonstrating the exercise of reasonable business judgment as discussed above. Debtor's argument that court review of use of estate funds for his personal living expenses (again without citation of any legal authority) constitutes a "complete intrusion into the lives of individuals cannot and should not be tolerated" is best reserved for argument before the circuit, or better yet, Congress, since this court is bound to apply applicable circuit case precedent.

As to Debtor's second request for authorization of his income and expense schedules as his budget with a 15% variance for expenses not within the ordinary course of business, Debtor has provided no evidence that such use of estate funds for the expenses listed on Schedule J meet the standards of 11 U.S.C. § 363 (b) (1) requiring a demonstration of the exercise of reasonable business judgment. In a conclusory manner, Debtor declares: "I am trying to be respectful of my obligations as a fiduciary for creditors, however I need to provide for my ongoing living expenses." Motion at 9. There is no explanation supported by evidence from Debtor to justify the specific monthly expenses listed on Schedule J, which seem unreasonable on their face for a debtor with no dependents, listing his occupation as a self-employed "expert witness", such as $6,878.00 for rental or homeowner expenses for residence [i.e., this works out to $82,536.00 a year, and there is no showing that such payment is an exercise of reasonable business judgment in terms of value to the estate); $475.00 for electricity, heat and natural gas, $795.00 for water, sewer, garbage collection, $570.00 for telephone, cell phone, internet, satellite and cable services, $900.00 for transportation, $600.00 for entertainment, $250.00 for monthly taxes owed for 2017 [i.e., unclear prepetition or postpetition], $250.00 for computer maintenance and supply, $1,200.00 for emergency expenses, $208.33 for "Nevada State Fine ($250 for 10 months) [i.e., this appears to be prepetition debt], $1,666.00 for roofing repairs and replacement [i.e., this also appears to be prepetition debt, and if future expense, it is not shown to be reasonable and necessary), $1,000.00 for "Long Term Care Policy Reinstatement" [i.e., appears to be prepetition debt, and if future expense, it is not shown to be reasonable and necessary] and $700.00 for "Long Term Care Supplies" [not explained or justified].

Because Debtor's budget based on his income and expense schedules is not supported by admissible and credible evidence and legal authority to support findings of fact and conclusions of law that the proposed use of estate funds, including debtor's postpetition income, for his personal living expenses meets the applicable legal standard under 11 U.S.C. § 363 (b) and case law, such as In re Dant & Russell, Inc., and In re Straightline Investments, Inc., relief based on such budget should be denied.

For the foregoing reasons, the court denies the Motion without prejudice. Debtor is granted leave to file an amended motion which addresses the concerns raised in this order, if he wishes. If Debtor files an amended motion, the court expects that he will submit admissible and credible evidence and briefing to support findings of fact and conclusions of law on the approval or disapproval of the use of estate funds to pay his personal living expenses under the Bankruptcy Code as outlined by the Bankruptcy Appellate Panel in In re Villalobos' and by this court in this order. Debtor may not use the "negative notice" provisions of Local Bankruptcy Rule 9013-1 for such an amended motion.

IT IS SO ORDERED.

ATTACHMENT

Copy of order denying Debtor's motion for order pursuant to 11 U.S.C. § 363 setting budget for interim use of estate property as defined in 11 U.S.C. § 1115 in In re Mark Vincent Kaplan, No. 2:15-bk-16187 RK Chapter 11 (Bankr. C.D. Cal., order filed and entered on June 11, 2015)

ORDER NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA LOS ANGELES DIVISION

On May 11, 2015, Debtor filed the instant "Motion in Individual Chapter 11 Case for Order Pursuant to 11 U.S.C. § 363 Setting Budget for Interim Use of Estate Property as Defined in 11 U.S.C. § 1115" (Docket No. 16) (the "Motion). On May 29, 2015, Debtor filed a Declaration of Non-Opposition pursuant to Local Bankruptcy Rule 9013-1(o).

Having reviewed and considered the Motion, the court hereby denies the motion without prejudice and with leave to amend subject to the conditions set forth herein.

The motion is denied because it is not supported by admissible and credible evidence and legal authority to support findings of facts and conclusions of law that the proposed use of estate funds for the personal living expenses of Debtor in the amount of $45,318 per month is authorized under 11 U.S.C. § 363, which governs the use, sale and lease of property of a bankruptcy estate, or any other provision of the Bankruptcy Code, 11 U.S.C. In re Villalobos, 2011 WL 4485793, slip op. at **8-9 and n. 13 (9th Cir. BAP 2011)(unpublished memorandum opinion). Although no opposition or objection to the Motion has been filed, and Local Bankruptcy Rule 9013-1(h) authorizes the court to deem such failure to be consent to granting the motion, the court is not obligated to do so. The court cannot grant a motion that has not made a prima facie case establishing that the moving party is entitled to the relief sought in the motion based on admissible evidence under the applicable law.

Debtor only provides his conclusory declaration as evidence in support of the Motion containing form language, "In order for the Debtor to reorganize effectively, Debtor must pay for reasonable actual household and/or business expenses." Motion at 3. Unless the court orders otherwise, a trustee or a debtor-in-possession may use, sell or lease estate property in the "ordinary course of business" without court approval pursuant to 11 U.S.C. § 363(c)(1). See also, 3 March, Ahart and Shapiro, California Practice Guide: Bankruptcy, ¶ 14:25 at 14(I)-2 (2014); In re Seely, 492 B.R. 284, 289-291 and nn. 4-6 (Bankr. C.D. Cal. 2013). The court notes that 11 U.S.C. § 1115, as added to the Bankruptcy Code in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), includes as property of the estate of a Chapter 11 debtor all earnings of the debtor after the commencement of the case before the case is closed, dismissed or converted, but that section does not refer to the use of such property while the case is pending. 11 U.S.C. § 1115(a)(2); In re Villalobos, 2011 WL 4485793, slip op. at **8-9 and n. 13.

In filing the Motion, Debtor seeks court approval of his proposed use of estate funds from his postpetition earnings in accordance with his budget for personal living expenses attached to the Motion, apparently because he believes that his proposed budget for use of estate funds is outside the ordinary course of business. The proposed budget to use estate funds of $45,318 per month for personal living expenses of Debtor, a single person with no dependents, on first blush does seem to be outside the ordinary course of business, and Debtor makes no showing that his proposed use of estate funds meets the standard of ordinary course of business under 11 U.S.C. § 363. In re Dant & Russell, Inc., 853 F.2d 700, 704-705 (9th Cir. 1988) (setting forth a two-part legal standard for ordinary course of business under 11 U.S.C. § 363); accord, In re Straightline Investments, Inc., 525 F.3d 870, 879 (9th Cir. 2008).1

If the proposed use of estate funds for personal living expenses is not within the ordinary course of business, a trustee or debtor-in-possession may use, sell or lease estate property only after notice and a hearing and upon a showing of the exercise of reasonable business judgment for such use outside the ordinary course of business under 11 U.S.C. § 363(b)(1). See also, 3 March, Ahart and Shapiro, California Practice Guide: Bankruptcy, ¶¶ 14:75 and 14:595 at 14(I)-6 and 14(1)-49, citing inter alia, In re Lionel Corp., 722 F.2d 1063, 1071 (2nd Cir. 1983) and In re Ernest Home Ctr., Inc., 209 B.R. 974, 979 (Bankr. W.D. Wash. 1997).

Because the evidence in support of the Motion is insufficient to show that Debtor's proposed use of estate funds is within the ordinary course of business or that Debtor has demonstrated reasonable business judgment for such use, the Motion will be denied. Other courts apparently have not articulated a specific and different standard for use of estate funds of an individual Chapter 11 debtor for personal living expenses under 11 U.S.C. § 363 or another Bankruptcy Code provision other than the standards laid out in In re Dant & Russell, Inc., 853 F.2d at 704-705, In re Straightline Investments, Inc., 525 F.3d at 879, or In re Lionel Corp., 722 F.2d at 1071. See also, In re Villalobos, 2011 WL 4485793, slip op. at **8-9 and n.13. In Villalobos, the Bankruptcy Appellate Panel of the Ninth Circuit reversed the order of the bankruptcy court approving the individual Chapter 11 debtor's personal living expenses on grounds that the bankruptcy court failed to issue sufficient findings of fact and conclusions of law to support approval or disapproval of the expenses in the debtor's proposed budget as well as to support approval of the debtor's budget nunc pro tunc to the petition date. Id. In Villalobos, the Bankruptcy Appellate Panel stated, "[g]iven the uncertainty in this area of the law [i.e., post-BAPCPA], the identification of the proper Bankruptcy Code section for approval of personal expenses of individual Chapter 11 debtors, it is all the more important for the bankruptcy court to articulate the legal rule being applied and the explicit findings of fact that support the legal rule." Id. at *9.

IT IS HEREBY ORDERED as follows:

IT IS SO ORDERED.