ORDER ON MOTION FOR RELIEF FROM AUTOMATIC STAY1

MIKE K. NAKAGAWA, Bankruptcy Judge.

On August 16, 2017, the court heard a Motion for Relief from Automatic Stay ("RAS Motion") brought by Broker Solutions, Inc., dba New American Funding ("BSI"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.

BACKGROUND

On March 9, 2017, a voluntary Chapter 11 petition was filed by Harkey Operating Trust, a Minnesota Business Trust ("Debtor"), in the bankruptcy court for the District of Minnesota. (ECF No. 1).

On March 31, 2017, Debtor filed its schedule of assets and liabilities ("Schedules"). (ECF No. 12). On the same date, Debtor filed its Statement of Financial Affairs ("SOFA"). (ECF No. 17). On its property Schedule A/B, Item 55.2, Debtor listed a fee simple interest in certain real property located at 48 Thunder Road, Camano Island, Washington, 98282 ("Thunder Road Property").2 On Schedule A/B, Item 74, Debtor listed causes of action against third parties identified in Exhibit 2, attached to the Schedules. That Exhibit 2 lists, inter alia, an action identified as "Michael Harkey v. US Bank, N.A., et al., filed in the United States Bankruptcy Court for the Western District of Washington, as Adv. No. 16-01355 involving 48 Thunder Road, Camano Island, Washington 98282. Case of Action: Quiet Title and damages under 11 U.S.C. sec. 362(k). (Motion for Relief from Order of Dismissal With Prejudice without jurisdiction —dismissal without prejudice being sought)."3 In a section entitled actions "not filed yet," Exhibit 2 also lists "Quiet Title action against Susan Kalson and William Kalson, Jr. concerning 48 Thunder Road, Camano Island, Washington 98282."4

On May 17, 2017, an order was entered authorizing the Debtor to employ attorney Wayne M. Pressel as special counsel in connection with an appeal before the Ninth Circuit Court of Appeal as well as another matter pending before the United States District Court for the District of Nevada.5 (ECF No. 42).

On June 8, 2017, an order was entered transferring the Debtor's case from the bankruptcy court in Minnesota to the bankruptcy court in Nevada. (ECF No.59).

On July 14, 2017, the instant RAS Motion was brought by BSI with respect to the Thunder Road Property.6 (ECF No. 85). The Motion is supported by the Declaration of James C. Clymer ("Clymer Declaration"). (ECF No. 89). The RAS Motion was noticed to be heard on August 16, 2017. (ECF No. 88). Under LR 9014(d)(1), opposition to the RAS Motion was due on August 2, 2107.

On July 28, 2017, an order was entered granting the Debtor's application to employ David A. Riggi as Chapter 11 counsel. (ECF No. 93).

On August 11, 2017, attorney Riggi filed an opposition to the RAS Motion on behalf of the Debtor. (ECF No. 94).

On August 14, 2017, a Declaration of Michael E. Harkey ("Harkey"), as one of two co-trustees of the Debtor, was filed in response to the RAS Motion ("Harkey Declaration"). (ECF No. 95). On the same date, a Declaration of Wendy Alison Nora ("Nora"),7 as the other co-trustee of the Debtor, also was filed in response to the RAS Motion ("Nora Declaration").8 (ECF No. 96).9 Later the same date, and Amended Declaration of Wendy Alison Nora also was filed in response to the motion. (ECF No. 98).

On August 16, 2017, the RAS Motion was heard. Attorney Riggi appeared on behalf of the Debtor. Attorney Pressel also appeared. Both the Harkey Declaration and the Nora Declaration expressed dissatisfaction with attorney Riggi and indicated that his services to the Debtor had been terminated. As of the hearing, however, attorney Riggi remained counsel of record as no substitution of attorneys had been approved, and attorney Riggi had not received permission from the court to withdraw.10 Although the response to the RAS Motion filed by attorney Riggi had suggested that a stipulation for relief from stay could be reached, apparently the Debtor's co-trustees disagreed11 and desire to submit a substantive opposition to the RAS Motion.12

DISCUSSION

Relief from the automatic stay may be granted for "cause," including a lack of adequate protection. 11 U.S.C. § 362(d)(1). Relief from stay as to property also may be granted if the debtor lacks equity in the subject property and the property is not necessary to an effective reorganization. 11 U.S.C. § 362(d)(2). On a motion for relief from stay, the moving party has the burden of proof with respect to the debtor's equity in an subject property, see 11 U.S.C. § 362(g)(1), while the responding party has the burden of proof on all other issues. 11 U.S.C. § 362(g)(2). The moving party is not required to establish the validity of its underlying claim, but need only establish a colorable basis to pursue its claims. See In re Edwards, 454 B.R. 100, 105 (B.A.P. 9th Cir. 2011).

In its RAS Motion, BSI seeks relief from the automatic stay with respect to the Thunder Road Property. BSI asserts that it has a deed of trust against the Thunder Road Property securing a loan to William Kalson, Jr. and Susan Kalson ("Kalsons"), and that title to the subject property is vested in the Kalsons rather than the Debtor. See RAS Motion at ¶ 5. BSI also asserts that the Kalsons owed $337,207.99 as of May 9, 2017. Id. at ¶ 7. The nature of the relief that BSI seeks, however, is uncertain due to the language appearing in the prayer of the RAS Motion and the language appearing in the Clymer Declaration.

The prayer of the RAS Motion is straightforward as it requests "an Order granting relief . . . permitting this Movant to move ahead with foreclosure proceedings under Movant's Trust Deed and to sell the subject Property under the terms of said Trust Deed, including necessary action to obtain possession of the Property." See RAS Motion at 6:4-8.13 By contrast, the Clymer Declaration represents that BSI "is requesting an Order stating the Property is not an asset of Debtor's estate, and thus the automatic stay is terminated." Clymer Declaration at 3:17-18. At the hearing, counsel for BSI withdrew any request for a determination that the Thunder Road Property is not an asset of the Debtor's estate, but requested a termination of the automatic stay so that BSI can seek to foreclose in the event the Kalsons default on thier loan payments.

The opposition filed on the Debtor's behalf suggests that relief from stay might be appropriate as long as its equitable claims are preserved, as illustrated by the Washington Quiet Title Action. See Opposition at 1:28 to 2:25. The two declarations filed by Harkey and Nora are, inter alia, critical of the services provided by attorney Riggi and request additional time to find new counsel to respond to the RAS Motion.

The court having considered the record, along with the arguments and representations of counsel, concludes that even the limited relief from stay ultimately requested by BSI at the hearing is unnecessary at this time.

The record before the court sufficiently establishes that BSI is a lender under an obligation secured by a deed of trust recorded against the Thunder Road Property. The apparent borrowers under that obligation, William Kalson, Jr. and Susan Kalson, are not in bankruptcy, nor are they protected by the automatic stay arising in the Debtor's instant Chapter 11 proceeding. In this instance, BSI asserts a secured interest only in the Thunder Road Property, which has been the subject of multiple bankruptcy filings affecting the property made by the Debtor or Harkey. The first two bankruptcy filings consisted of separate Chapter 13 cases commenced by Harkey in the Washington Bankruptcy Court.

The first Chapter 13 proceeding was filed by Harkey in pro se on October 17, 2008, denominated Case No. 08-16934. The Chapter 13 petition listed Harkey's street address as the Thunder Road Property. (Washington 1 ECF No. 1). No schedules of assets or liabilities were filed. On November 24, 2008, the Chapter 13 was dismissed and on December 4, 2008, the case was closed.14

The record also reflects that Harkey filed a second Chapter 13 proceeding on January 12, 2009, denominated Case No. 09-10180-TTG.15 The Chapter 13 petition listed Harkey's street address as the Thunder Road Property. (Washington 2 ECF No. 1). The Chapter 13 debtor's real property Schedule "A" also listed Harkey's residence as the Thunder Road Property. (Washington 2 ECF No. 14)16

On January 3, 2009, an order was entered denying confirmation of a proposed Chapter 13 plan and dismissing Harkey's second Chapter 13 case. (Washington 2 ECF No. 53). On April 22, 2009, the Chapter 13 case was closed. The third bankruptcy filing affecting the Thunder Road Property occurred more than six years later.

On October 16, 2015, Harkey commenced Adversary Proceeding No. 15-01355-MLB, styled as Michael Harkey v. Northwest Trustee Services, MERS, U.S. Bank, N.A., and others ("Washington 2 Adversary"). That adversary proceeding apparently was commenced in connection with Harkey's second Chapter 13 case even though it had been dismissed in 2009. The adversary complaint alleged that the Washington Bankruptcy Court had ancillary jurisdiction under "11 U.S.C. § 1334(b)" (sic)17 to award Harkey sanctions and damages under a variety of vague legal theories. (Washington 2 Adversary ECF No. 1).18

On November 17, 2015, defendant US Bank, NA, filed a motion to dismiss the adversary complaint accompanied by the Declaration of Kennar M. Goodman.19 (Washington 2 Adversary ECF Nos. 7 and 8).

On December 1, 2015, Harkey filed an amended adversary complaint. (Washington 2 Adversary ECF No. 15).

On December 4, 2015, US Bank filed a reply in support of its dismissal motion. (Washington 2 Adversary ECF No. 18).

On December 10, 2015, an order was entered dismissing the complaint and amended complaint for lack of subject matter jurisdiction, without prejudice to a further amended complaint sufficiently alleging subject matter jurisdiction. (Washington 2 Adversary ECF No. 26).

On January 19, 2016, Harkey filed a declaration requesting an extension of time to file a second amended complaint alleging subject matter jurisdiction. (Washington 2 Adversary ECF No. 39).

On January 22, 2016, the Washington Bankruptcy Court entered an order dismissing the adversary complaint with prejudice as to US Bank, NA. (Washington 2 Adversary ECF No. 44).

On May 2, 2016, an order was entered dismissing the remaining claims in the adversary proceeding for lack of prosecution and closing the case. (Washington 2 Adversary ECF No. 54).

On June 2, 2016, the adversary proceeding was closed.

On November 23, 2016, Harkey filed a motion to reopen the adversary proceeding and to vacate the orders that dismissed the adversary proceeding with prejudice. (Washington 2 Adversary ECF No. 63). Even though Harkey had voluntarily commenced the adversary proceeding, he argued that because the claims had been dismissed for lack of subject matter jurisdiction, the dismissals should have been without prejudice. On January 11, 2017, the Washington Bankruptcy Court heard Harkey's motion and took the matter under submission.

The fourth bankruptcy filing affecting the Thunder Road Property occurred on March 9, 2017, when the Debtor commenced the instant Chapter 11 proceeding in Minnesota. As previously noted, Harkey formed the Debtor on April 27, 2016, and transferred the Thunder Road Property and other real estate interests into the trust. See discussion at note 9, supra. At least three of the other four real estate interests also were held by Harkey during his second Chapter 13 proceeding, see note 16, supra, before those interests were transferred to the Debtor.

On this record, it therefore appears that at least four bankruptcy filings affecting the Thunder Road Property have occurred, and that several parcels of real property, including the Thunder Road Property, have been transferred by Harkey to the Debtor. It also appears that the Debtor or Harkey have litigated the issue of title to the Thunder Road Property in both state court and federal court without success, and apparently intend to pursue appeals of the adverse results.

Examination of the SOFA and Schedules filed by the Debtor raise a variety of concerns. According to Item 1 of the SOFA, the Debtor's fiscal year began on May 2, 2016, which was shortly after the Debtor was formed. See note 9, supra. As of the date the Debtor filed its Chapter 11 petition, Item 1 of the SOFA also attests that the Debtor had received no gross revenues, and Items 2, 3 and 4 indicate that it has received some nature of capital contributions for litigation expenses. Debtor also has filed Chapter 11 operating reports for the months of March, April and May, 2017. (ECF Nos. 33, 48, 64). Those operating reports attest that the Debtor received no gross revenues during any of those months and that it has received capital contributions on a cash basis sufficient to pay quarterly Chapter 11 fees to the United States Trustee. Those reports also disclose that the Debtor pays no employees, pays no secured creditors, pays no taxes, and pays no insurance.

According to its creditor Schedules D, the Debtor has five secured creditors with claims totaling approximately $5,500,000, the latest of which was incurred on September 7, 2007. The trust agreement submitted by the Debtor, however, establishes that the Debtor never existed when those purported claims were incurred. According to its creditor Schedule E/F, the Debtor also has as nine nonpriority unsecured creditors with claims in an unknown amount, all of which claims were incurred on March 3, 2017. All of the unsecured claims are specified as having the same basis as the creditor identified in Item 3.1, i.e., MERSCORP Holidngs, Inc.20 All of the purported unsecured claims appear to arise in connection with the foreclosures of the real property underlying the five secured claims. Inasmuch as the Debtor never existed at the time the underlying real property was encumbered, it is not readily apparent how the foreclosures would have given rise to claims against the Debtor. Under these circumstances, it does not appear that the Debtor has any creditors at all.

According to Item 56 of property Schedule A/B, the total value of the Debtor's interests in real property is $3,525,000. According to Item 64 of Schedule A/B, the Debtor also has "other intangibles, or intellectual property" having an estimated market value of $7,500,000. According to Item 78 of Schedule A/B, the Debtor also has other assets, including causes of action against third parties, other claims, and equitable interests in real property, having an estimated value of plus or minus $10,000,000. Item 92 of Schedule A/B attests that the total value of the Debtor's assets are plus or minus $21,027,600. If this value is remotely accurate, the Debtor may be solvent as the value of its alleged assets is many times greater than its alleged liabilities. Additionally, in spite of including the words "Operating Trust" in the Debtor's name, it does not appear to have any operations at all according to its own monthly reports. The Debtor never generated any gross revenues before bankruptcy and it has not generated any gross revenues after bankruptcy. Instead, the Debtor appears to be an artificial entity created to hold purported assets previously owned by Harkey, most of which are lawsuits or threatened lawsuits against entities or individuals who have had some financial interaction with Harkey. According to the Debtor, the purpose of its Chapter 11 filing on March 9, 2017, was to "protect Trust's interest in litigation asset for recovery of real estate and damages resulting from fraud and racketeering." See Monthly Operating Report For Period Ending March 31, 2017, Form 2-G Narrative. (ECF No. 33).

Debtor apparently maintains that it has an equitable interest in the Thunder Road Property that would be property of its bankruptcy estate. See 11 U.S.C. § 541(a)(1). As previously discussed, see note 8, supra, the Debtor values that interest at $1.5 million. If the interest exists at all, enforcement of BSI's lien against the Thunder Road Property would be barred by the automatic stay. See 11 U.S.C. § 362(a)(4).

In this instance, BSI seeks relief from stay for cause under Section 362(d)(1), as well as for lack of equity and necessity for reorganization under Section 362(d)(2).21 As previously mentioned at 6, supra, the Kalsons apparently are not in bankruptcy and there is no automatic stay preventing foreclosure on the Thunder Road Property in the event they default on their obligation to BSI. When the RAS Motion was filed on July 14, 2017, BSI alleged that the Kalsons were in default and that BSI had elected to initiate foreclosure proceedings. See RAS Motion at ¶¶ 9 and 10. At the hearing on the RAS Motion, however, counsel for BSI advised the court that as of August 15, 2017, the Kalsons were no longer in default. Presumably, BSI no longer has any basis, much less an imminent reason, to pursue foreclosure under its deed of trust.

As to the Debtor, the evidentiary record does not support relief under Section 362(d)(1) nor under Section 362(d)(2). BSI asserts that the fair market value of the Thunder Road Property is approximately $303,773.00 based on a county tax assessors report attached as Exhibit D to the RAS Motion, see RAS Motion at ¶ 12, as well as "the Debtor's Schedules A & D." RAS Motion at ¶ 17.22 Nora attests that the Debtor values its interest in the Thunder Road Property at $1.5 million. See note 8, supra.23 Neither party has offered a third-party appraisal to establish the fair market value of the property. If the Debtor is correct, the bankruptcy estate would have an "equity cushion" in the Thunder Road Property sufficient to constitute adequate protection of BSI's interest. See In re Mellor, 734 F.2d 1396, 1400-01 (9th Cir. 1984). Likewise, there is no evidence of a diminution in the value of the Thunder Road Property after the commencement of the Chapter 11 proceeding otherwise establishing that adequate protection payments should be required under Section 362(d)(1). See First Federal Bank of California v. Weinstein (In re Weinstein), 227 B.R. 284, 296-97 (B.A.P. 9th Cir. 1998). Moreover, if the Debtor's asserted value is correct, the bankruptcy estate arguably has equity in the Thunder Road Property and the burden never shifts to the Debtor under Section 362(d)(2)(B) to provide evidence that it can propose a plan of reorganization that has "a reasonable possibility of being confirmed within a reasonable time." See United Savings Association of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 375-76, 108 S.Ct. 626, 632-33 (1988).

On the present record, these factual issues as to the value of the Thunder Road Property and the alleged value of the Debtor's purported interest cannot be resolved in favor of BSI nor the Debtor. More important, there is no need to address these issues at this time as BSI does not seek to foreclose on the Thunder Road Property, the Kalsons apparently do not seek to hypothecate or sell the Thunder Road Property,24 and the Debtor has not taken any steps during this Chapter 11 proceeding that impacts the Thunder Road Property.

For the reasons discussed, the court will deny the RAS Motion without prejudice. In light of the court's concerns regarding the multiple bankruptcy filings, the property transfers, the doubtful existence of any creditors of the Debtor, and the absence of operations, the court will direct the UST to review whether the appointment of an examiner or a Chapter 11 trustee, as well as conversion to Chapter 7 or dismissal of the case, is appropriate.25

IT IS THEREFORE ORDERED that the Motion for Relief from Automatic Stay, Docket No. 85, be, and the same hereby is, DENIED WITHOUT PREJUDICE.

IT IS FURTHER ORDERED that a status hearing will be held on October 18, 2017, at 9:30, at which a representative of the Office of the United States Trustee is required to attend. No later than October 11, 2017, the Office of the United States Trustee must file a statement addressing whether grounds exist to appoint an examiner or trustee in this Chapter 11 proceeding, or to convert or dismiss the case.