Brown Bark I L.P. v. Ebersole (In Re Ebersole)
440 B.R. 690
| Bankr. W.D. Va. | 2010Background
- Debtor Ebersole executed a $539,000 note with Bank of America on Dec 17, 2002, secured by a deed of trust on the primary residence and business-property hybrid at 667 Walters Mill Lane, Stephenson, VA.
- Property is both Debtor's residence and income source; Debtor operates a large pet boarding/rich-use facility on 5 acres with kennels and training facilities.
- Brown Bark I L.P. claims the Note via merger with NC-WC L.P., asserting it holds the Note through an allonge showing the Note payable to NC-WC LP.
- Debtor filed Chapter 13 on Sep 29, 2009; Brown Bark moved for relief from stay on Dec 9, 2009; case converted to Chapter 11 on Jan 14, 2010.
- Court considers whether Brown Bark, as holder, has standing to seek relief and whether relief is warranted under §§ 362(d)(1) and (d)(2) based on equity and necessity for reorganization.
- Court values the Property at $710,000; liens total approximately $1,007,021.15, yielding negative equity; however, court finds the Property is necessary for Debtor’s prospective reorganization.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Brown Bark have standing to seek relief from stay? | Brown Bark is holder of the Note via NC-WC merger and/or assignment; thus a party in interest. | Debtor challenges standing, arguing Brown Bark must be the real party in interest and holder of the Note. | Brown Bark has standing as holder and colorable claim. |
| Is relief from stay proper under § 362(d)(1) for cause or inadequate protection? | Brown Bark argues lack of adequate protection and/or lack of equity justifies relief. | Debtor contends there is adequate protection and equity cushion exists; relief not warranted. | No cause for relief under § 362(d)(1); adequate protection exists. |
| Is relief from stay proper under § 362(d)(2) given lack of equity and necessity for reorganization? | No equity exists; property not necessary for reorganization; relief should be granted. | Property has value sufficient for a reorganization plan; the property is necessary for a feasible reorganization. | No relief under § 362(d)(2) because the property is necessary for a successful reorganization. |
| What is the appropriate analysis of equity and necessity for reorganization in this case? | Equity cushion limited; junior liens ignored for § 362(d)(1) but not for § 362(d)(2); lack of equity supports relief. | Debtor must show a reasonable prospect of reorganization and necessity of the property; plan in prospect exists. | Equity cushion exists for § 362(d)(1); however, for § 362(d)(2) the property is necessary for reorganization and relief denied. |
Key Cases Cited
- In re White, 410 B.R. 195 (Bankr.W.D.Va. 2008) (initial burden on movant; then debtor bears burden on all issues except equity)
- In re Joyner, 416 B.R. 190 (Bankr.M.D.N.C. 2009) (movant has initial burden; debtor bears burden on other issues)
- In re Weisband, 427 B.R. 13 (Bankr.D.Ariz. 2010) (colorable claim standards; holder of note constitutes real party in interest)
- Nantucket Investors II v. California Federal Bank (In re Indian Palms Associates, Ltd.), 61 F.3d 197 (3d Cir. 1995) (equity cushion; junior liens disregarded for equity analysis)
- Porter v. Provident Bankshares Corp., N/A (E.D. Va. 2007) (recognizes Maryland law governs holder/enforcement under choice-of-law clause)
- Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941) (federal choice-of-law rules apply; use state choice-of-law rules)
- United Savings Association of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365 (1988) (necessity for reorganization requires a reasonable prospect of success in prospect)
- In re Mellor, 734 F.2d 1396 (9th Cir. 1984) (context for equity analysis in § 362(d)(2))
- LaJolla Mortgage Fund v. Rancho El Cajon Assocs., 18 B.R. 283 (Bankr.S.D. Cal. 1982) (equity cushion analysis; junior liens ignored for cushion purposes)