Saigon Plaza Association LLC

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 07-40169 T
Chapter 11
SAIGON PLAZA ASSOCIATION, LLC,
etc.,
Debtor-in-Possession.
________________________________/
MEMORANDUM OF DECISION
On 	March 	16, 	2009, 	the 	above-captioned 	court 	(the 	“Court”)
conducted 	a 	hearing 	on 	the 	first 	amended 	disclosure 	statement 	(the
“Disclosure Statement”) with regard to the second amended plan (the
“Plan”) in the above-captioned case. 	Appearances were stated on the
record. 	At the conclusion of the hearing, the Court denied approval
of 	the 	Disclosure 	Statement 	and 	informed 	the 	parties 	that 	both 	the
Plan and the Disclosure Statement had serious problems. 	It advised
the 	parties 	that 	it 	would 	issue 	a 	written 	ruling 	explaining 	the
reasons for its decision in due course. 	The reasons for the Court’s
decision are set forth below.
Signed: March 23, 2009
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
March 24, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 1 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1Originally, as a single asset case, pursuant to 11 U.S.C. §
362(d)(3), the case was on a fast track. 	However, the Debtor and
CMR have entered into a series of agreements extending the relevant
deadlines set forth therein.
2Hue Ly and Hue To are husband and wife and the owners of New
Saigon.
2
BACKGROUND
Saigon 	Plaza 	Association, 	LLC 	(the 	“Debtor”) 	is 	a 	California
limited 	liability 	company 	that 	was 	formed 	to 	own 	and 	develop 	real
property 	located 	at 	380-388 	Twelfth 	Street 	in 	Oakland, 	California
(the 	“Real 	Property”). 1 	The 	Real 	Property 	was 	intended, 	when
construction was completed, to house residential condominiums and one
or more restaurants. 	The interest holders of the Debtor are John Le
Tung (“Tung”), New Saigon Supermarket, Inc. (“New Saigon”), Hue Ly,
Hue 	To, 	and 	Muoi 	Tran. 2 	The 	interest 	holders 	all 	guaranteed 	the
secured 	debt 	on 	the 	Real 	Property 	and 	secured 	their 	guaranty
obligations with their own real property.
The 	Real 	Property 	was 	acquired 	by 	Tung 	in 	1998 	and 	was
transferred 	to 	the 	Debtor 	in 	2005. 	Tung 	is 	the 	manager 	of 	the
Debtor. 	The Real Property is encumbered by two deeds of trust. 	The
first priority deed of trust is held by California Mortgage & Realty,
Inc. (“CMR”). 	The balance on the first deed of trust (the “CMR Deed
of Trust”) is in excess of $6 million. 	The second deed of trust is
held 	by 	Roger 	Woo, 	Loretta 	Woo, 	and 	Wing 	Har 	Ng 	(“Woo/Ng”). 	The
balance on the second deed of trust (the “Woo/Ng Deed of Trust”) is
just under $5 million.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 2 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
3
The Woo/Ng Deed of Trust was previously in first priority on the
Real Property. 	The CMR Deed of Trust was placed on the Real Property
in 	2005 	in 	connection 	with 	a 	loan 	obtained 	to 	finance 	the 	planned
construction. 	Woo/Ng agreed to subordinate the secured position of
the Woo/Ng Deed of Trust to the CMR Deed of Trust. 	The construction
funds apparently proved inadequate to complete the construction. 	CMR
initiated 	foreclosure 	proceedings, 	and 	on 	January 	18, 	2007, 	the
Debtor 	filed 	this 	chapter 	11 	bankruptcy 	case. 	To 	the 	Court’s
knowledge, 	no 	further 	work 	has 	been 	done 	on 	the 	project 	since 	the
filing nor has it been listed for sale “as is.”
CMR filed a proof of claim in the bankruptcy case. 	On June 21,
2007, the Debtor filed an objection to the CMR claim. 	On August 30,
2007, CMR filed a motion to compel arbitration of the claims asserted
in 	the 	objection 	pursuant 	to 	an 	arbitration 	agreement 	entered 	into
pre-petition by the Debtor. 	On September 17, 2007, the Debtor filed
an adversary proceeding against CMR, A.P. 07-4149 AT (the “Adversary
Proceeding”).
A 	hearing 	on 	the 	motion 	to 	compel 	was 	conducted 	on 	October 	1,
2007. 	On 	November 	5, 	2007, 	the 	Court 	issued 	a 	Memorandum 	of
Decision, granting the motion to compel arbitration as to the Fifth,
Sixth, 	and 	Seventh 	Claims 	for 	Relief 	and 	staying 	litigation 	of 	the
remaining 	claims 	except 	for 	the 	First 	Claim 	for 	Relief. 	The 	Court
has received no evidence of to what extent, if any, the arbitration
has 	proceeded. 	No 	litigation 	has 	been 	conducted 	to 	date 	in 	this
court with respect to the First Claim for Relief.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 3 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
4
On 	February 	12, 	2008, 	CMR 	filed 	a 	motion 	for 	relief 	from 	the
automatic stay so as to proceed with its foreclosure sale. 	A hearing
was conducted on March 14, 2008. 	At the hearing, the Court held that
the 	automatic 	stay 	would 	be 	vacated 	unless 	a 	good 	faith 	plan 	and
disclosure statement were filed and properly noticed for hearing by
June 19, 2008. 	Thereafter, CMR and the Debtor entered into a series
of 	agreements 	continuing 	this 	deadline, 	which 	the 	Court 	approved.
The parties have represented to the Court that, during this period,
they 	were 	attempting 	to 	resolve 	their 	disputes. 	Apparently, 	they
have 	concluded 	that 	resolution 	of 	these 	disputes 	is 	unlikely. 	On
January 28, 2009, the Debtor and CMR entered into an agreement that
CMR 	would 	be 	entitled 	to 	relief 	from 	the 	automatic 	stay 	unless 	the
Debtor noticed a disclosure statement for hearing on March 16, 2009
or if the Court, at the hearing, found that the plan did not have a
reasonable possibility of being confirmed within a reasonable time.
On February 19, 2009, the Debtor filed the Plan and Disclosure
Statement. 	A 	hearing 	on 	the 	Disclosure 	Statement 	was 	noticed 	for
March 16, 2009. 	Objections to the Disclosure Statement were filed by
CMR, 	Woo/Ng, 	and 	Tung. 	At 	the 	hearing, 	the 	Court 	stated 	that 	the
Plan 	and 	Disclosure 	Statement 	were 	both 	seriously 	deficient. 	It
advised the parties orally of some of the defects and stated that it
would issue a more detailed ruling thereafter.
THE PLAN
1. 	Article I-Definitions
The 	definition 	of 	the 	Effective 	Date 	of 	the 	Plan 	is
unacceptable. 	The Plan states that the Effective Date is the later
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 4 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
5
of: (1) (more or less) 15 days after the Confirmation Order becomes
final or (2) 15 days following the entry of a final order resolving
the CMR Litigation. 	It is the latter portion of the definition that
is 	unacceptable. 	First, 	the 	term 	CMR 	Litigation 	is 	not 	defined 	in
the 	Plan. 	Second, 	the 	Effective 	Date 	must 	occur 	promptly 	after
confirmation 	and 	cannot 	be 	a 	date 	left 	to 	the 	uncertainties 	of 	a
litigation or settlement schedule.
2. 	Article II–Designation of Classes of Claims and Interests
The only problem with this section is with Class 4. 	First, the
description 	is 	overbroad. 	As 	the 	Plan 	recognizes 	elsewhere, 	some
priority claims are not classified. 	More seriously, if the priority
claims 	are 	to 	be 	impaired, 	each 	type 	of 	priority 	claim 	must 	be
separately classified so that their votes may be properly counted for
confirmation purposes.
3. 	Articles III through V
There are no defects in Articles III through V except that the
proposed 	treatment 	of 	the 	Class 	1 	and 	2 	claims 	does 	not 	expressly
state that the holders of the claims will retain their liens unless
otherwise 	ordered 	by 	the 	Court 	as 	a 	result 	of 	post-confirmation
litigation. 	Section 	7.8 	states 	that 	property 	will 	revest 	in 	the
Debtors [sic] free and clear of all liens. 	Although the Court does
not believe that the Debtor intends by these two provisions to render
the two secured claims unsecured as a fait accompli, taken together,
there is an ambiguity as to the effect of confirmation on the secured
claims.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 5 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
6
4. 	Article VI-Means of Execution
The 	Plan 	fails 	to 	adequately 	describe 	the 	means 	by 	which 	it
intends to execute the Plan: e.g., the source of funds with which it
intends 	to 	pay 	any 	claims 	to 	be 	paid 	on 	the 	Effective 	Date 	and 	to
prosecute the litigation and whether the Debtor intends to market the
Real Property immediately or delay doing so until the litigation is
concluded.
5. 	Article VI Effect of Confirmation of the Plan
A. 	Debtor’s Liability
It is questionable whether the Plan fairly contemplates a post-
confirmation operation by the Debtor so as to qualify the Debtor for
a discharge. 	However, the provision stating that the Debtor’s owners
will have no liability to creditors of the Debtor is either improper
or 	unnecessary. 	If 	the 	claims 	in 	question 	are 	claims 	against 	the
Debtor, as owners of a limited liability company, the owners of the
Debtor 	have 	no 	liability 	for 	them. 	If 	the 	claims 	in 	question 	are
claims 	against 	the 	owners, 	confirmation 	of 	the 	Plan 	will 	not
eliminate the owners’ liability for them.
B. 	Discharge; Third Parties
The 	second 	to 	the 	last 	sentence 	of 	section 	7.2 	is 	contrary 	to
Ninth 	Circuit 	law 	and 	should 	be 	deleted. 	See 	In 	re 	American
Hardwood, 885 F.2d 621, 625-27 (9th Cir. 1989). 	The last sentence of
that paragraph is disingenuous and should be deleted as well.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 6 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
7
C. 	Discharge, Release and Injunction
To 	the 	extent 	it 	applies 	to 	anyone 	other 	than 	the 	Debtor, 	the
first and third paragraphs of section 7.4 are improper and should be
deleted.
The second paragraph of section 7.4, which states that the Plan
should be treated as an application for approval of a compromise, is
also 	improper 	and 	should 	be 	deleted. 	To 	the 	extent 	it 	applies 	to
claims 	against 	the 	Debtor, 	at 	most, 	the 	Plan 	could 	be 	treated 	as 	a
compromise of claims as to those creditors who voted in favor of the
Plan. 	The 	Plan 	may 	not 	be 	treated 	as 	an 	application 	to 	compromise
claims 	asserted 	by 	the 	Debtor 	against 	creditors 	or 	other 	third
parties 	in 	the 	absence 	of 	an 	agreement 	to 	compromise 	between 	the
Debtor and those third parties and without addressing the standards
set forth in In re A & C Properties, 784 F.2d 1377 (9th Cir.) cert.
denied, 479 U.S. 854 (1986).
The fourth paragraph of section 7.4 is contrary to Ninth Circuit
law and should be deleted. 	See In re American Hardwoods, Inc., 885
F.2d 621, 625-27 (9th Cir. 1989).
D. 	Exculpation
Section 	7.6 	is, 	for 	the 	most 	part, 	beyond 	the 	Court’s
jurisdiction. 	The Court has no power to provide that confirmation of
the 	Plan 	shall 	provide 	for 	the 	releases 	inter 	se 	of 	the 	Debtor’s
current managers, professionals, and consultants.
6. 	Articles VIII and IX
There are no defects in these sections.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 7 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
8
7. 	Cramdown Requested
The 	Court 	does 	not 	believe 	that 	the 	Plan 	can 	be 	confirmed 	if
Class 1 votes to reject it. 	The option to convey title to the Real
Property to CMR does not give CMR the indubitable equivalent of its
claim. 	If permitted to foreclose, CMR would receive payment in full
or title to the Real Property free of any junior liens. 	If title is
simply conveyed to CMR by the Debtor, the Real Property would remain
subject to the junior liens.
The Court does not believe that the Plan can be confirmed over
the objection of either Class 5 or 6. 	The Plan does not provide for
payment in full with post-petition interest to these Classes. 	Even
if this provision were changed, the Court does not believe that the
Plan would qualify for cramdown. 	The Plan provides that the interest
holders 	will 	retain 	their 	interests 	unless 	the 	Debtor 	is 	unable 	to
pay the Class 6 claims in full, in which case the interests will be
conveyed to Class 6. 	However, the transfer of the interests to Class
6 	at 	that 	point 	is 	unlikely 	to 	provide 	any 	value 	to 	the 	Class 	6
creditors let alone payment in full. 	Moreover, there is not even any
proposal to transfer the interests to the Class 5 creditors.
THE DISCLOSURE STATEMENT
Three sets of objections were filed with respect to the adequacy
of the Disclosure Statement. 	The objections and the Court’s rulings
with 	respect 	to 	them 	are 	set 	forth 	below. 	Finally, 	the 	Court 	will
provide 	its 	own 	views 	as 	to 	the 	deficiencies 	of 	the 	Disclosure
Statement.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 8 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
9
1. 	OBJECTION BY WOO/NG
The only objection to the Disclosure Statement made by Woo/Ng,
the holder of a second priority deed of trust on the Real Property,
is that the Disclosure Statement improperly describes its interest.
It 	notes 	that 	the 	Disclosure 	Statement 	states 	that, 	if 	the 	Woo/Ng
Secured 	Claim 	has 	no 	value, 	Woo/Ng 	will 	have 	an 	unsecured 	claim.
Woo/Ng 	contends 	that, 	even 	if 	the 	Real 	Property 	has 	insufficient
value to reach its claim, its claim is still a secured claim, not an
unsecured one.
Debtor’s 	Response: 	The 	Debtor’s 	response 	to 	this 	objection
assumes that Woo/Ng mistakenly believe that, if the Debtor succeeds
in 	avoiding 	CMR’s 	first 	priority 	secured 	claim, 	the 	Woo/Ng 	Deed 	of
Trust will move into first priority and therefore attach to value in
the Real Property. 	The Debtor asserts that, to the contrary, CMR’s
secured 	position 	will 	be 	preserved 	for 	the 	general, 	unsecured
creditors of the estate. 	Thus, the Woo/Ng Deed of Trust will still
not 	attach 	to 	any 	value 	in 	the 	Real 	Property 	and 	is 	properly
characterized as unsecured. 	See 11 U.S.C. § 551.
Ruling: This objection is overruled. 	Clearly, at present, with
the CMR Deed of Trust in first priority position, the Woo/Ng claim is
subject to being avoided as fully unsecured by any value in the Real
Property. 	See 	11 	U.S.C. 	§ 	506(a) 	and 	(d). 	However, 	whether 	the
avoidance 	or 	invalidation 	of 	CMR’s 	Deed 	of 	Trust 	would 	improve 	the
Woo/Ng 	Deed 	of 	Trust 	depends 	on 	the 	legal 	theory 	used 	to 	challenge
CMR’s 	claim. 	Not 	every 	legal 	theory 	asserted 	by 	the 	Debtor 	would
result in preservation of CMR’s secured position for the benefit of
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 9 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
10
the estate. See 11 U.S.C. § 551. 	However, confirmability of the Plan
rests 	on 	the 	votes 	of 	Woo/Ng 	and 	CMR. 	The 	Court 	does 	not 	believe
this 	imperfect 	discussion 	of 	the 	nature 	of 	the 	Woo/Ng 	claim 	will
affect how Woo/Ng or CMR would choose to cast their vote in favor or
against the Plan.
2. 	OBJECTIONS BY TUNG
Tung objects that the Disclosure Statement undervalues the Real
Property. 	In his opinion, its “as is” value is more than $5 million.
He 	discusses 	the 	basis 	for 	this 	belief. 	He 	states 	that 	the 	Real
Property has never been put on the market for sale and questions why
this 	has 	not 	occurred 	during 	the 	two 	years 	the 	Debtor 	has 	been 	in
bankruptcy. 	He 	notes 	that 	the 	Plan 	is 	an 	amended 	plan 	and 	wonders
what 	became 	of 	the 	first 	plan 	of 	reorganization. 	He 	appears 	to
believe 	that 	the 	Plan 	is 	being 	proposed 	by 	CMR 	rather 	than 	the
Debtor. 	He 	accuses 	CMR 	of 	attempting 	to 	victimize 	the 	Vietnamese
owners of the Debtor and asks the Court to investigate these matters.
Debtor’s Response: None.
Ruling: The Court overrules Tung’s objections as unintelligible.
Tung 	is 	the 	responsible 	person 	for 	the 	Debtor-in-Possession. 	Both
the 	original 	plan 	and 	this 	amended 	plan 	are 	being 	submitted 	by 	the
Debtor-in-Possession, 	that 	is, 	at 	his 	direction. 	If 	Tung 	believes
CMR 	is 	guilty 	of 	oppressive 	conduct, 	that 	claim 	can 	be 	litigated,
either here or in some other court.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 10 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
11
3. 	OBJECTIONS BY CMR
A. 	Section III Objections
Although 	Section 	III 	does 	not 	place 	a 	legal 	label 	on 	its
objection to the Disclosure Statement, the Court concludes that its
narrative 	asserts 	that 	the 	Disclosure 	Statement 	contains 	an
inadequate discussion of the feasibility of the Plan.
CMR 	notes 	that 	the 	Disclosure 	Statement 	indicates 	that 	the
success of the Plan depends on the Debtor’s success in its litigation
against CMR. 	CMR asserts that this success is purely speculative and
that 	the 	Disclosure 	Statement 	contains 	no 	discussion 	of 	the
likelihood of the Debtor succeeding on the merits of the litigation
or 	being 	able 	to 	collect 	any 	monetary 	judgment 	if 	successful. 	CMR
notes 	that 	CMR 	Mortgage 	Fund, 	LLC, 	one 	of 	the 	defendants, 	is
currently in its own bankruptcy case.
CMR 	notes 	that 	the 	Disclosure 	Statement 	states 	that, 	in 	the
Debtor’s opinion, the value of the Real Property is between $1 and 2
million based on a 2005 appraisal and, based on a 2007 proposal, it
will take $5,000,000 to complete construction. 	CMR asserts that both
the appraisal and the proposal are hopelessly out of date.
CMR estimates the current fair market value of the Real Property
as $850,000 or less. 	It asserts that the existing construction will
have 	to 	be 	demolished 	and 	the 	construction 	begun 	again. 	It 	notes
that 	the 	Debtor 	has 	provided 	no 	information 	about 	how 	it 	might
finance 	any 	additional 	construction. 	Finally, 	CMR 	objects, 	the
Debtor 	has 	provided 	no 	support 	for 	its 	statement 	that 	the 	Real
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 11 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
12
Property will be worth from $8.5 to 13 million when the construction
is complete.
CMR 	argues 	that, 	if 	the 	Debtor 	is 	unsuccessful 	in 	its
litigation, 	its 	only 	realistic 	option 	will 	be 	to 	convey 	the 	Real
Property 	to 	CMR. 	However, 	in 	the 	meantime, 	CMR 	will 	be 	delayed 	in
foreclosing so as to recover some portion of its claim, and the Real
Property may lose additional value. 	The Debtor does not propose to
make any payments to CMR in the meantime nor does the Debtor appear
to have any ability to do so.
The 	Disclosure 	Statement 	also 	fails 	to 	discuss 	the 	Debtor’s
plans 	for 	preserving 	the 	Real 	Property 	pending 	completion 	of 	the
litigation, 	either 	physically 	or 	by 	paying 	real 	property 	tax 	and
insurance premiums. 	CMR notes that the Debtor apparently intends to
leave 	the 	current 	manager, 	Tung, 	in 	control 	of 	the 	Debtor. 	CMR
asserts that Tung has shown little ability to successfully manage or
develop the Real Property to date and thus his continued management
of the construction does not bode well for its success.
Finally, 	CMR 	notes 	that 	the 	Disclosure 	Statement 	does 	not
disclose any defense the Debtor has against the Woo/Ng secured claim.
Therefore, even if the Debtor were completely successful in avoiding
CMR’s 	secured 	claim, 	the 	value 	of 	the 	Real 	Property 	would 	still 	be
grossly insufficient to satisfy the Woo/Ng secured claim. 	Therefore,
there 	is 	no 	chance 	that 	the 	Debtor 	would 	be 	entitled 	to 	retain 	the
Real Property. 	Thus, the Debtor would almost certainly find itself
in a liquidation or further reorganization.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 12 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
13
Debtor’s 	Response: 	The 	Debtor 	notes 	that 	much 	of 	CMR’s
objection 	to 	the 	Disclosure 	Statement 	consists 	of 	a 	lengthy
description of the history of the loan relationship. 	It states that
it has no objection to including CMR’s version of that history if the
Court feels it is necessary.
The 	Debtor 	contends 	that, 	contrary 	to 	CMR’s 	objection, 	the
Disclosure 	Statement 	does 	contain 	sufficient 	information 	to 	permit
creditors 	to 	make 	an 	informed 	judgment 	whether 	to 	accept 	or 	reject
the 	Plan. 	The 	Debtor 	contends 	that 	it 	is 	sufficient 	for 	the
Disclosure 	Statement 	to 	describe 	the 	matters 	at 	issue 	in 	the
litigation with CMR and to give the Debtor’s opinion as to the likely
outcome of the litigation.
The Debtor contends that it is of limited importance to discuss
whether 	any 	judgment 	in 	its 	favor 	could 	be 	collected 	from 	CMR. 	It
explains 	that 	the 	remedy 	of 	avoidance 	of 	CMR’s 	lien 	on 	the 	Real
Property, 	either 	based 	on 	the 	one 	action 	rule 	or 	on 	11 	U.S.C. 	§
502(d), would be self-executing.
The 	Debtor 	notes 	that 	CMR 	also 	objects 	to 	the 	quality 	of 	the
valuation 	information 	in 	the 	Disclosure 	Statement. 	It 	responds 	to
this 	objection 	by 	pointing 	out 	the 	volatile 	nature 	of 	the 	current
real estate market and the difficulty of placing any accurate value
on 	real 	property. 	With 	respect 	to 	CMR’s 	objections 	to 	the 	lack 	of
any discussion of financing for future construction, the Debtor notes
that it intends to list the Real Property for sale promptly.
The Debtor notes that CMR questions what benefit will be gained
from 	proceeding 	with 	the 	Plan 	given 	the 	limited 	value 	of 	the 	Real
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 13 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
14
Property as compared to the amounts of the two secured claims. 	The
Debtor 	asserts 	that 	the 	value 	of 	the 	Plan 	and 	the 	litigation 	it
envisions 	is 	to 	avoid 	CMR’s 	liens 	so 	as 	to 	free 	up 	value 	for 	the
unsecured creditors.
Ruling: This objection is sustained.
The Debtor’s version of the loan history is currently set forth
in the Disclosure Statement. 	To be adequate, this section would have
to 	be 	revised 	to 	include 	CMR’s 	version 	of 	the 	history 	as 	well. 	A
particularly 	significant 	omission 	from 	the 	Debtor’s 	version 	is 	the
pre-petition 	forbearance 	agreement 	entered 	into 	with 	CMR 	which
apparently released claims by the Debtor against CMR.
The 	Court 	also 	agrees 	with 	CMR 	that 	the 	Disclosure 	Statement
does not contain an adequate discussion of the litigation or of the
value 	of 	the 	Real 	Property. 	When 	there 	are 	disputes 	concerning
critical 	elements 	of 	a 	chapter 	11 	case, 	the 	Disclosure 	Statement
should contain a disclosure of both sides of the dispute, not merely
the Debtor’s side.
Finally, 	the 	Debtor’s 	statement 	that 	the 	benefit 	to 	be 	gained
from proceeding with the litigation is to free up value in the Real
Property for the benefit of the general, unsecured creditors is not
persuasive. 	The 	Debtor 	should 	disclose 	who 	the 	general, 	unsecured
creditors 	are, 	the 	relative 	amounts 	of 	their 	claims, 	and 	in 	what
fashion 	they 	would 	be 	benefited. 	As 	the 	Court 	stated 	at 	the
Disclosure Statement hearing, it appears that the unsecured creditors
to 	be 	“benefited” 	would 	principally 	be 	the 	same 	creditors 	rendered
unsecured by avoidance of their liens.
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 14 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
15
B. 	Section IV Objections
CMR asserts that, in any event, the Debtor’s litigation claims
are without merit and the Debtor is unlikely to be successful in the
litigation 	upon 	which 	the 	success 	of 	the 	Plan 	depends. 	CMR 	notes
that the Debtor contends that CMR did not have a perfected security
interest 	in 	the 	trust 	account 	in 	which 	the 	construction 	funds 	were
held. 	CMR explains the basis for its contention that it did have a
perfected 	security 	interest, 	citing 	various 	Code 	sections 	of 	the
California Commercial Code and two bankruptcy court decisions: In re
Gemini at Dadeland, 24 B.R. 57, 59 (Bankr. S.D. Fla. 1982) and In re
O.P.M. Leasing Services, Inc., 46 B.R. 661 (Bankr. S.D.N.Y. 1985).
CMR 	notes 	that 	the 	Debtor 	has 	filed 	a 	motion 	to 	amend 	its
adversary complaint to add a Tenth Claim for Relief, alleging a one
action rule violation under Cal. Civ. Proc. Code § 726(a). 	It notes
that a recent Ninth Circuit Bankruptcy Appellate Panel case, Kearns
v. Transamerica Home Loan, 314 B.R. 819, 821 (Bankr. 9th Cir. 2004)
which held that conduct such as CMR’s did not violate the one action
rule.
Debtor’s Response: The Debtor responds that CMR’s legal analysis
is 	incorrect. 	The 	analysis 	is 	based 	on 	a 	faulty 	statement 	of 	the
facts and a misapplication of the law. 	The Debtor contends that it
has 	already 	responded 	to 	these 	arguments 	in 	its 	reply 	to 	CMR’s
opposition 	to 	its 	motion 	to 	amend 	the 	complaint 	in 	the 	adversary
proceeding.
Ruling: 	This 	objection 	is 	overruled. 	The 	Court 	is 	unable 	to
determine whether the Debtor’s claims against CMR have any merit. 	It
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 15 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
16
has never been provided with the loan documents. 	However, the Court
doubts 	that 	the 	lack 	of 	a 	more 	thorough 	discussion 	of 	this 	issue
would 	affect 	whether 	Woo/Ng 	or 	CMR 	voted 	to 	accept 	or 	reject 	the
Plan.
4. 	COURT’S COMMENTS
As stated at the hearing on the Disclosure Statement, the Plan
makes 	no 	sense 	to 	the 	Court. 	Clearly, 	the 	Debtor 	has 	no 	equity 	in
the 	Real 	Property. 	The 	stated 	purpose 	of 	the 	Plan 	is 	to 	avoid 	the
two 	secured 	claims 	on 	some 	basis 	or 	another 	so 	as 	to 	free 	up 	value
for the unsecured creditors. 	However, in the Disclosure Statement,
the Debtor states that the unsecured claims filed against the estate
total less than $3,000 and that the bulk of the unsecured claims will
be 	the 	deficiency 	claims 	of 	the 	two 	secured 	creditors. 	It 	is
unclear 	how 	the 	Debtor 	intends 	to 	finance 	the 	litigation. 	More
important, 	it 	is 	unclear 	why 	the 	Debtor 	would 	wish 	to 	finance 	the
litigation. 	Clearly, 	the 	outcome 	of 	the 	litigation 	would 	merely
affect who received a greater share of any proceeds from the sale of
the Real Property: i.e., CMR and Woo/Ng.
The 	Court 	assumed 	that 	the 	purpose 	of 	the 	Plan 	was 	to 	obtain
releases 	for 	the 	guarantors. 	As 	stated 	at 	the 	hearing, 	those
provisions are contrary to the Bankruptcy Code and to Ninth Circuit
law. 	Thus, 	they 	may 	not 	be 	retained 	in 	the 	Plan. 	However, 	at 	the
hearing, counsel for the Debtor expressed a willingness to strip any
such provisions from the Plan. 	The Court sees no other purpose to be
served by confirming the Plan and permitting current equity holders
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 16 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
17
to remain in control of the Real Property and in charge of litigating
claims in which they have no economic stake.
CONCLUSION
The 	Court 	finds 	that 	the 	Disclosure 	Statement 	is 	deficient 	in
many respects and that the Plan has serious deficiencies. 	Moreover,
the 	Court 	finds 	that 	there 	is 	no 	reasonable 	possibility 	that 	the
Debtor 	will 	be 	able 	to 	obtain 	confirmation 	of 	the 	Plan 	within 	a
reasonable 	period 	of 	time. 	Therefore, 	pursuant 	to 	the 	Debtor’s
stipulation 	with 	CMR, 	CMR 	is 	entitled 	to 	relief 	from 	the 	automatic
stay. 	Counsel 	for 	CMR 	is 	directed 	to 	submit 	a 	proposed 	order 	in
accordance with this decision.
END OF DOCUMENT
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 17 of
18

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
18
COURT SERVICE LIST
Steven B. Sacks
Sheppard, Mullin, Richter and Hampton
4 Embarcadero Center, 17 th Floor
San Francisco, CA 94111
Jeffery D. Trowbridge
180 Grand Ave., Ste. 1550
Oakland, CA 94612
Razi A. Shah
2140 Shattuck Ave., Ste. 411
Berkeley, CA 94704
Darya Sara Druch
one Kaiser Plaza, Ste. 480
Oakland, CA 94612
Marc Alan Fong
Law Offices of Fong & Fong, APC
1141 Harbor Bay Parkway, Ste. 206
Alameda, CA 94502-2218
Case: 07-40169 Doc# 269 Filed: 03/23/09 Entered: 03/24/09 13:28:36 Page 18 of
18