Pacific Capital Bancorp, N.A. v. East Airport Development, LLC (In Re East Airport Development, LLC)
443 B.R. 823
9th Cir. BAP2011Background
- East Airport Development, LLC holds 26 lots in San Luis Obispo, secured by a $9.7M construction loan to Pacific Capital, refinanced to about $10.6M.
- EAD defaulted; Pacific Capital pursued foreclosure while EAD filed Chapter 11 on February 10, 2010.
- EAD sought to sell two lots free and clear of Pacific Capital's lien under § 363(f) with proceeds to pay release prices and fund sewer work.
- A prepetition release price agreement appeared to obligate Pacific Capital to release specific lots upon payment of stated prices; Debtor produced supporting emails/letters.
- Pacific Capital objected, denying existence of the agreement and challenging the use of cash collateral for costs.
- Bankruptcy court granted the sale and the cash collateral request; on appeal, the Panel affirmed sale but vacated/remanded cash collateral issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the court abuse discretion in approving sale free and clear for paying release prices? | Pacific Capital contends no valid release price agreement existed; sale improper without consent or value over liens. | EAD asserts an enforceable release-price contract allowing release of specific lots upon payment; sale proper under § 363(f)(5). | Yes; sale affirmed under § 363(f)(5). |
| Are surplus sale proceeds cash collateral requiring a separate cash collateral hearing? | Surplus beyond release prices remains cash collateral; requires protections and budgeting. | Surplus funds may not be cash collateral if security interest disappears post-release. | No; vacate/remand to determine if surplus is cash collateral and conduct proceedings if so. |
Key Cases Cited
- Provenz v. Miller, 102 F.3d 1478 (9th Cir. 1996) (new evidence in reply not always fatal; evidence-based rebuttal considerations)
- Lamle v. Mattel, Inc., 394 F.3d 1355 (Fed. Cir. 2005) (emails can satisfy writing for statute of frauds purposes)
- Gumport v. AT&T Techs., Inc., 89 F.3d 559 (9th Cir. 1996) (parol evidence rule limitations on prior or contemporaneous writings)
- Orlando Orange Groves Co. v. Davenport, 77 F.2d 148 (5th Cir. 1935) (deed release provisions enforceable upon payment)
- Magna Development Co. v. Reed, 39 Cal. Rptr. 284 (Cal. App. 1964) (release of specific lot from lien upon payment)
- United Real Estate & Trust Co. v. Blochman, 244 F. 688 (9th Cir. 1917) (release price funds and trustee understanding)