Action Development LLC

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 05-49398 T
Chapter 7
ACTION DEVELOPMENT, LLC,
Debtor.
___________________________/
MEMORANDUM AND ORDER RE VARIOUS DOCUMENTS FILED
BY A DEBTOR CORPORATION UNREPRESENTED BY COUNSEL
The above-captioned debtor (the “Debtor”) seeks various orders
from 	the 	Court. 	For 	the 	reasons 	stated 	below, 	the 	orders 	are 	all
denied.
The 	Debtor 	filed 	a 	voluntary 	petition 	seeking 	relief 	under
chapter 11 of the Bankruptcy Code on December 9, 2005. 	The Debtor’s
primary asset was real property located in Oakland, California (the
“Real 	Property”). 	The 	Debtor 	had 	been 	attempting 	to 	build 	32
condominium 	units 	on 	the 	Real 	Property 	since 	2004. 	The 	Debtor 	had
obtained 	a 	construction 	loan 	from 	Scripps 	Investment 	& 	Loans, 	Inc.
(“Scripps”) 	in 	January 	2004. 	The 	project 	was 	supposed 	to 	be
completed and the loan repaid by February 2005 at the latest. 	By the
time of the filing, the construction had only progressed to the stage
Signed: May 03, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
May 03, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-49398 Doc# 69 Filed: 05/03/06 Entered: 05/03/06 16:19:06 Page 1 of 6

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that a foundation slab had been laid. 	The Debtor scheduled the value
of the Real Property at approximately $3.3 million. 	Scripps provided
evidence that the principal balance due on the loan was approximately
$3.9 million.
The Debtor contended that Scripps had breached the construction
project in various ways. 	The primary complaints voiced were that the
Debtor had not realized that it was required to pay for insurance for
the 	project 	and 	that 	it 	did 	not 	appear 	that 	Scripps 	had 	placed
retention 	funds 	in 	an 	interest 	bearing 	account 	as 	required 	by 	the
agreements. 	The 	Debtor 	also 	complained 	that 	not 	all 	of 	the 	loan
funds had actually been disbursed.
However, 	Scripps 	presented 	evidence, 	which 	the 	Debtor 	did 	not
dispute, that, in return for a series of forbearances, from February
2005 to December 2005, the Debtor released Scripps from any claims.
Notwithstanding these releases, in September 2005 the Debtor filed a
complaint against Scripps in state court, asserting these same claims
and 	in 	December 	2005 	filed 	an 	ex 	parte 	application 	for 	a 	temporary
restraining order. 	After the temporary restraining order was denied,
the 	state 	court 	complaint 	was 	dismissed 	with 	prejudice. 	Shortly
there after, the Debtor filed its chapter 11 petition.
The 	Court 	conducted 	three 	preliminary 	hearings: 	i.e., 	on
February 10, March 31, and April 14, 2006. 	During this period, the
Debtor 	made 	two 	adequate 	protection 	payments 	of 	interest 	only 	to
Scripps. 	Persuasive 	evidence 	was 	presented 	by 	Scripps 	that 	the
Debtor 	did 	not 	have 	adequate 	insurance. 	Although 	the 	Debtor
represented 	that 	he 	was 	attempting 	to 	get 	alternative 	financing,
Case: 05-49398 Doc# 69 Filed: 05/03/06 Entered: 05/03/06 16:19:06 Page 2 of 6

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according 	to 	Scripps, 	the 	Debtor 	had 	made 	similar 	representations
during the various forbearance periods. 	Scripps presented persuasive
evidence 	that 	the 	value 	of 	the 	Real 	Property 	was 	deteriorating
because the Real Property had not been properly winterized. 	At one
of 	the 	hearings, 	counsel 	for 	Scripps 	noted 	that 	the 	tentative 	map,
upon which the project depended, would expire in one year. 	Since the
project 	would 	take 	close 	to 	one 	year 	to 	complete, 	time 	was 	of 	the
essence.
When asked what the Debtor’s plan of reorganization would be if
the Court did not grant Scripps relief from the automatic stay, the
Debtor 	responded 	that 	its 	plan 	was 	to 	object 	to 	Scripps’ 	claim 	by
asserting the claims that had previously been released as a basis for
reducing 	it 	down 	to 	a 	level 	where 	the 	Real 	Property 	could 	be 	sold.
The Debtor contended that the release only prevented an affirmative
recovery 	from 	Scripps, 	not 	the 	assertion 	of 	claims 	as 	an 	offset.
However, 	Scripps 	directed 	the 	Court 	to 	specific 	language 	in 	one 	of
the 	forbearance 	agreements 	expressly 	waiving 	all 	claims 	against
Scripps as offsets, among other things.
Based on the foregoing, the Court concluded that, in addition to
not having any equity in the Real Property, the Debtor did not have
a reasonable prospect for reorganizing within a reasonable period of
time. 	See 11 U.S.C. § 362(d)(2). 	The Debtor has the burden of proof
on 	this 	element 	of 	a 	claim 	for 	relief. 	See 	11 	U.S.C. 	§ 	362(g)(2).
The Court also observed that the case had all the earmarks of a bad
faith 	filing. 	Thereafter, 	given 	the 	Court’s 	ruling 	on 	this 	issue,
with the consent of the Debtor’s counsel, the case was converted to
Case: 05-49398 Doc# 69 Filed: 05/03/06 Entered: 05/03/06 16:19:06 Page 3 of 6

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chapter 	7 	of 	the 	Bankruptcy 	Code 	without 	prejudice 	to 	its 	being
dismissed thereafter.
After these ruling were made, the Debtor’s responsible officer,
Michael 	Gray 	(“Gray”), 	filed 	various 	documents 	on 	behalf 	of 	the
Debtor without benefit of counsel: i.e., Docket Nos. 58, 59, and 60.
The Court is advised that Gray considers these documents a motion for
reconsideration. 	When advised that a corporation could not appear or
file 	documents 	without 	being 	represented 	by 	counsel, 	Mr. 	Gray
apparently persuaded an attorney, Ivan Golde, to permit his name to
be placed on the following orders prepared by Gray and submitted to
the Court: (1) Order to Allow for the Reconsideration of Relief From
Stay 	for 	the 	Sale 	601 	Mac 	Arthur, 	Oakland 	California 	Granted
4/14/2006, (2) Order to Put in Place a Stay of the Sale 601 MacArthur
Oakland 	California, 	(3) 	Order 	to 	Convert 	Case 	No# 	05-49398 	from
Chapter 	7 	to 	Chapter 	11, 	(4) 	Order 	Granting 	Action 	Development 	a
Hearing on the As It Relates to the Amount Owed by Action Development
LLC 	to 	Scripps 	Investment 	and 	Loan, 	and 	(5) 	Order 	to 	Extend
Exclusivity Period to File a Plan of reorganization for Thirty Days.
At 	present, 	there 	are 	no 	motions 	properly 	before 	the 	Court 	to
which these orders relate. 	However, rather than denying the motions
solely 	on 	this 	ground, 	thereby 	encouraging 	the 	Debtor 	to 	expend
additional efforts in attempting to persuade the Court to reconsider
its decision to grant relief from the automatic stay and to convert
the 	case 	to 	chapter 	7, 	the 	Court 	will 	deny 	them 	on 	the 	merits 	as
well. 	The 	contents 	of 	Gray’s 	filings 	do 	not 	support 	a 	prima 	facie
Case: 05-49398 Doc# 69 Filed: 05/03/06 Entered: 05/03/06 16:19:06 Page 4 of 6

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case for reconsideration of those orders given the other undisputed
evidence presented to the Court.
Based on the foregoing, it is hereby
ORDERED that the various requests for relief discussed above be,
and they hereby are, denied.
END OF DOCUMENT
Case: 05-49398 Doc# 69 Filed: 05/03/06 Entered: 05/03/06 16:19:06 Page 5 of 6

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COURT SERVICE LIST
Adleson, Hess & Kelly
Patric J. Kelly
577 Salmar Ave., Second Floor
Campbell, CA 95008
Ivan W. Golde
508 16 th St., Ste. 1100
Oakland, CA 94612
Michael Gray
2523 El Portal Dr., #101
San Pablo, CA 94806
Case: 05-49398 Doc# 69 Filed: 05/03/06 Entered: 05/03/06 16:19:06 Page 6 of 6