Quail Lake Estates Associates

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 08-41296 T
Chapter 11
QUAIL LAKE ESTATES ASSOCIATES,
L.P., etc.,
Debtor-in-Possession.
_______________________________/
MEMORANDUM OF DECISION DENYING CONFIRMATION
A 	contested 	evidentiary 	hearing 	on 	confirmation 	of 	the 	above-
captioned debtor’s First Amended Plan of Reorganization of June 16,
2008 (Amended July 21, 2008) (the “Plan”) was conducted on September
15 	and 	29, 	2008 	pursuant 	to 	the 	objection 	of 	BankFirst, 	a 	secured
creditor. 	At 	the 	conclusion 	of 	the 	hearing, 	the 	Court 	took 	the
matter 	under 	submission. 	Having 	fully 	considered 	the 	issues
presented, the Court now concludes that confirmation must be denied.
The reasons for the Court’s decision are set forth below.
SUMMARY OF FACTS AND PROCEDURAL HISTORY
Quail 	Lake 	Associates, 	L.P. 	(the 	“Debtor”) 	filed 	a 	voluntary
petition 	seeking 	relief 	under 	chapter 	11 	on 	March 	19, 	2008. 	The
Debtor 	is 	a 	limited 	partnership 	which 	was 	formed 	in 	April 	2006 	for
Signed: October 06, 2008
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 08, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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the 	purpose 	of 	acquiring 	and 	developing 	into 	residential 	lots 	over
700 	acres 	of 	real 	property 	located 	in 	Nevada 	County 	(the 	“Real
Property”). 	The 	sole 	general 	partner 	of 	the 	Debtor 	is 	Claremont
Properties LLC of which Thomas C. Dashiell (“Dashiell”) is the sole
member 	and 	manager. 	There 	are 	two 	limited 	partners, 	Christopher
Clark and Nevada Partners Club LLC (“Nevada Partners”), of which John
Ham (“Ham”) is the general partner.
The Real Property was purchased in April 2006 for approximately
$15 	million. 	BankFirst 	provided 	the 	Debtor 	with 	a 	loan 	for
approximately $10.4 million dollars of the purchase price and holds
a first priority deed of trust on the Real Property. 	The balance of
the 	purchase 	price 	was 	advanced 	by 	Investors 	Mortgage 	Corporation
(“IMC”), 	an 	affiliate 	of 	Nevada 	Partners. 	IMC 	holds 	a 	second
priority deed of trust on the Real Property.
The Debtor intends to develop the Real Property into 93 lots, 91
of the lots to be sold to third parties and 2 of the lots--Lots 7 and
80–-to 	be 	reconveyed 	to 	the 	sellers 	pursuant 	to 	the 	terms 	of 	the
purchase 	agreement 	(the 	“Vendor 	Purchase 	Agreement”). 	The 	Vendor
Purchase Agreement provides that, if the Debtor fails to convey the
lots to the sellers, it is obligated to pay the seller $2 million.
In 	December 	2006 	a 	tentative 	subdivision 	map 	was 	approved 	by
Nevada 	County, 	subdividing 	the 	property 	into 	three 	legal 	parcels.
Since then, due to lack of funds, no work of any substance has been
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1At his deposition, Dashiell testified that the deadline for
obtaining final map approval was September 2009. 	However, at the
confirmation hearing, it was established to the Court’s
satisfaction that California legislation had extended this deadline
to September 2010.
2The characterization in the Plan and elsewhere of the
sellers’ rights to reconveyance of Lots 7 and 80 as a vendor’s lien
is inaccurate.
3
done. 	The 	deadline 	for 	obtaining 	approval 	of 	a 	final 	subdivision
map, creating the 93 lots, is September 12, 2010. 1
The 	original 	term 	of 	the 	BankFirst 	loan 	was 	one 	year. 	The
Debtor 	obtained 	a 	consensual 	six 	month 	extension 	of 	that 	term 	by
paying three months of interest. 	BankFirst advanced the other three
months 	of 	interest. 	When 	the 	additional 	six 	month 	term 	expired
without 	payment 	or 	a 	refinance, 	BankFirst 	commenced 	foreclosure
proceedings. 	The 	bankruptcy 	case 	was 	filed 	shortly 	before 	the
scheduled foreclosure sale.
The 	Real 	Property, 	less 	the 	two 	lots 	to 	be 	reconveyed 	to 	the
sellers, 	has 	been 	valued 	at 	$20,090,000 	in 	its 	present 	state. 	The
Debtor 	estimates 	the 	value 	of 	the 	two 	lots 	to 	be 	at 	least 	an
additional $2 million. 	BankFirst’s security interest attaches to the
Real 	Property 	in 	its 	entirety 	and 	is 	not 	affected 	by 	the 	sellers’
rights. 2 	Thus, its collateral is worth approximately $22 million.
The 	balance 	of 	BankFirst’s 	debt 	at 	this 	time 	is 	approximately 	$12
million. 	The only secured claims senior to BankFirst are the 2007-
2008 property tax claims totaling approximately $350,000. 	The junior
secured 	debt 	held 	by 	IMC 	totals 	in 	excess 	of 	$8 	million. 	There 	is
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approximately $1 million of unsecured debt, of which Dashiell is owed
approximately $650,000.
Two 	weeks 	after 	the 	Debtor 	filed 	its 	bankruptcy 	petition,
BankFirst 	filed 	a 	motion 	for 	relief 	from 	the 	automatic 	stay.
Because 	this 	case 	is 	a 	single 	asset 	case, 	11 	U.S.C. 	§ 	362(d)(3)
requires 	the 	Debtor, 	within 	90 	days 	of 	the 	petition 	date, 	to 	begin
making 	interest 	payments 	on 	BankFirst’s 	secured 	claim 	or 	to 	file 	a
plan and disclosure statement that has a reasonable chance of being
confirmed within a reasonable period of time. 	At the conclusion of
the hearing on BankFirst’s motion for relief from stay, because the
Debtor 	clearly 	had 	no 	ability 	to 	make 	interest 	payments, 	the 	Court
conditioned 	continuation 	of 	the 	automatic 	stay 	on 	the 	Debtor’s
satisfying 	the 	latter 	criteria. 	The 	Plan 	was 	filed 	by 	the 	90 	day
deadline, on June 17, 2008.
Shortly after the Plan was filed, BankFirst filed a request for
a status conference. 	It contended that it was entitled to immediate
relief because the Debtor’s plan (the “Plan”) was not confirmable.
A telephone conference was scheduled for July 1, 2008. 	On June 30,
2008, 	the 	Court 	issued 	a 	Memorandum 	in 	Preparation 	for 	Telephone
Conference 	(the 	“June 	30 	Memorandum”). 	In 	the 	June 	30 	Memorandum,
among 	other 	things, 	the 	Court 	expressed 	the 	view 	that 	the 	Plan 	was
legally 	deficient 	in 	that 	it 	did 	not 	promise 	unconditionally 	any
payment to general, unsecured creditors and provided that holders of
equity 	interests 	would 	retain 	their 	interests. 	See 	11 	U.S.C. 	§
1126(g).
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26 3Dashiell testified at the confirmation hearing that this was
not actually a secured claim and that foreclosure by BankFirst
would take precedence over this claim.
5
The Court suggested that it might be wise to deal with the legal
issues before proceeding to an evidentiary hearing. 	The Debtor and
BankFirst declined to follow this suggestion and chose to proceed to
an 	evidentiary 	confirmation 	hearing. 	Thereafter, 	the 	Debtor 	made
some 	revisions 	to 	the 	Plan 	and 	Disclosure 	Statement, 	the 	Court
conditionally approved the Disclosure Statement, and an evidentiary
hearing was scheduled for September 15, 2008.
The Debtor solicited votes from all impaired classes, including
the 	class 	of 	general, 	unsecured 	creditors. 	The 	only 	objection 	or
negative vote was received from BankFirst. 	The confirmation hearing
began 	on 	September 	15, 	2008 	and 	was 	continued 	and 	concluded 	on
September 29, 2008.
SUMMARY OF THE PLAN
The 	Plan 	designates 	four 	classes 	of 	secured 	claims, 	three
classes 	of 	unsecured 	claims, 	and 	two 	classes 	of 	equity 	interests.
The 	three 	classes 	of 	secured 	claims 	are 	Classes 	A-1, 	the 	BankFirst
secured 	claim, 	Class 	A-2, 	the 	IMC 	secured 	claim, 	A-3, 	the 	sellers’
right to reconveyance of Lots 7 and 80 3, and A-4, the Nevada County
property tax claim. 	The classes of unsecured claims are Classes B,
the classified priority claims, C, general, unsecured claims, and D,
the 	insider 	unsecured 	claim 	of 	Dashiell 	or 	his 	limited 	liability
company. 	The 	classes 	of 	interests 	are 	Classes 	E-1, 	the 	limited
partner 	interests, 	and 	E-2, 	the 	general 	partner 	interests. 	All 	of
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4The QLE Property Sale or Recapitalization is defined in
section B-3 of the Plan as: (1) the sale of all or part of the Real
Property, (2) a refinancing of the Real Property, (3) the re-
capitalization of the Debtor by new partner contributions, new
borrowing, merger, entry into a joint venture, or by any other
means, or (4) a combination of the foregoing.
6
the classes are designated as impaired except Class B, the class of
nontax 	priority 	claims, 	which 	the 	Plan 	proposes 	to 	pay 	in 	full 	in
cash on the effective date.
The Plan proposes to treat the unclassified administrative and
priority tax claims as required by the Bankruptcy Code. 	With respect
to Classes A-1 and A-2, the secured claims of BankFirst and IMC, it
proposes 	that 	the 	secured 	claimants 	will 	retain 	their 	liens 	on 	the
Real Property and that their claims will be paid in full when a QLE
Property Sale or Recapitalization occurs. 4 	The Plan provides that
this must occur within two years from the effective date or they will
be entitled to foreclose their security interests. 	In the mean time,
the holders of these claims will receive no payment. 	Interest will
accrue 	on 	their 	claims 	at 	the 	nondefault 	rate 	unless, 	prior 	to
confirmation, 	the 	Court 	determines 	that 	another 	rate 	is 	required.
During this period of up to two years, the secured creditors will be
entitled to seek relief from the foreclosure bar for cause, including
lack of adequate protection.
The Plan provides that the Class A-4 Nevada County property tax
claim 	will 	be 	treated 	in 	the 	same 	manner 	as 	Classes 	A-1 	and 	A-2
except that the interest rate will be as provided in 11 U.S.C. § 511.
In addition, to the extent that any portion of this claim would, if
unsecured, constitute a priority tax claim, the holder of the claim
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5At the confirmation hearing, Dashiell testified that the
sellers did not hold a security interest to secure this obligation.
Thus, the designation of Class A-3 as the Vendor Lien Claim is a
misnomer.
7
will 	receive 	deferred 	cash 	payments 	as 	required 	by 	the 	Bankruptcy
Code.
Class A-3 is characterized as a secured claim. 5 	In fact, this
claim represents the Debtor’s unsecured obligation to reconvey Lots
7 	and 	80 	to 	the 	sellers. 	The 	Plan 	provides 	that 	the 	sellers 	will
“retain” their lien, that the Debtor will comply with its obligation
if 	legally 	able 	to 	do 	so, 	but 	that 	any 	monetary 	liability 	will 	be
discharged without payment. 	More 	precisely, 	the 	Plan proposes to
give 	the 	sellers, 	in 	place 	of 	their 	unsecured 	claim, 	a 	junior 	lien
securing 	the 	Debtor’s 	obligation 	to 	reconvey 	the 	lots 	(if 	legally
able 	to 	do 	so) 	while 	eliminating 	any 	monetary 	obligation 	for 	its
failure to do so.
The 	Plan 	proposes 	to 	pay 	Class 	C, 	the 	class 	of 	noninsider
general, 	unsecured 	claims, 	only 	to 	the 	extent 	there 	are 	sufficient
funds 	after 	QLE 	Property 	Sale 	or 	Recapitalization 	to 	do 	so 	after
paying 	all 	secured 	debt, 	priority 	debt, 	all 	actual 	or 	projected
expenses of the QLE Sale or Recapitalization, plus, if the Debtor is
being liquidated or dissolved, a reserve for the anticipated expenses
of 	the 	liquidation 	or 	dissolution. 	The 	Class 	D 	insider 	unsecured
claims will be paid only if there are funds remaining after Class C
claims 	are 	paid 	in 	full. 	The 	Debtor 	will 	receive 	a 	discharge 	from
liability for these claims even if no payment is made. 	Finally, the
Plan 	provides 	that 	the 	Class 	E-1 	and 	E-2 	interests 	will 	be
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6An exception to this provision is that the Debtor will be
entitled to employ and pay professionals post-confirmation without
Court approval.
7The second sentence of the first paragraph of the Substantial
Consummation section is unintelligible. 	In the event the Plan is
amended to correct the legal deficiencies noted by the Court, this
sentence should be eliminated or substantially revised.
8
extinguished except that if sufficient funds are received from a Sale
or Recapitalization, these interests will be “revived.”
The Plan provides further that, after confirmation, the Debtor
will 	be 	managed 	by 	Dashiell 	subject 	to 	direction 	by 	a 	Board
consisting 	of 	Dashiell, 	Ham 	(the 	principal 	of 	IMC 	and 	a 	limited
partner 	of 	the 	Debtor), 	and 	Alan 	Vail 	(“Vail”). 	Vail 	is 	a 	pre-
petition 	creditor 	who 	has 	performed 	engineering 	services 	for 	the
Debtor 	on 	the 	project 	and 	intends 	to 	continue 	to 	do 	so 	after
confirmation. 	The Debtor will continue to operate after confirmation
as 	a 	Reorganized 	Debtor. 	However, 	most 	of 	its 	actions 	will 	be
subject to the same notice and hearing requirements as if it were a
debtor-in-possession. 6 	In 	addition, 	the 	bankruptcy 	estate 	will
remain 	in 	existence 	and 	the 	Debtor’s 	property 	will 	be 	protected 	in
the same fashion (i.e., by the automatic stay) as if it were property
of the estate.
Once a QLE Property Sale or Recapitalization has occurred, the
Plan 	will 	be 	deemed 	to 	be 	substantially 	consummated, 7 	and 	all
remaining property of the estate will revest in the Debtor. 	However,
both 	before 	and 	after 	this 	occurs, 	the 	Debtor 	will 	be 	entitled 	to
prosecute, 	abandon, 	settle, 	or 	otherwise 	dispose 	of 	any 	of 	the
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Reorganized 	Debtor’s 	claim, 	including 	claims 	created 	by 	the
Bankruptcy Code.
DISCUSSION
A. 	LEGAL DEFICIENCIES NOTED BY COURT
As 	the 	Court 	pointed 	out 	in 	the 	June 	30 	Memorandum, 	the 	Plan
cannot be confirmed because it makes no unconditional promise of any
payment 	to 	the 	Class 	C 	general, 	unsecured 	creditors. 	Although 	the
Class C creditors uniformly voted in favor of the Plan, they were not
entitled 	to 	vote. 	Section 	1126(g) 	of 	the 	Bankruptcy 	Code 	provides
that, 	if 	a 	plan 	does 	not 	provide 	for 	any 	payment 	to 	unsecured
creditors, the class of claims is deemed to have rejected the plan.
When 	a 	class 	of 	unsecured 	creditors 	rejects 	the 	plan, 	the 	plan 	can
only be confirmed pursuant to 11 U.S.C. 1129(b) upon a finding that
the 	plan 	does 	not 	discriminate 	unfairly 	and 	is 	fair 	and 	equitable.
The Plan is not fair and equitable as to the Class C creditors.
To paraphrase, 11 U.S.C. § 1129(b)(2)(B) of the Bankruptcy Code
provides 	that, 	with 	respect 	to 	a 	class 	of 	general 	unsecured
creditors, a plan is not fair and equitable unless it provides either
for 	payment 	in 	full 	of 	the 	class 	of 	unsecured 	claims 	or 	that 	no
subordinate 	claim 	or 	interest 	will 	“receive” 	or 	“retain” 	anything
under 	the 	Plan 	on 	account 	of 	their 	pre-existing 	claim 	or 	interest.
The 	Plan 	attempts 	to 	circumvent 	this 	requirement 	by 	providing 	that
the 	interests 	represented 	by 	Classes 	E-1 	and 	E-2 	will 	be
extinguished. 	However, 	this 	language 	is 	just 	window 	dressing. 	The
Plan also provides that the interests will be “revived” if there is
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sufficient 	cash 	to 	pay 	off 	creditors. 	An 	interest 	that 	is 	truly
extinguished cannot be “revived.”
The Plan also provides that the Debtor will continue to operate
after 	confirmation 	as 	the 	Reorganized 	Debtor. 	This 	provision 	is
essential 	for 	the 	Debtor 	to 	receive 	a 	discharge. 	See 	11 	U.S.C. 	§
1141(d)(3). 	However, absent the appointment of a trustee, an entity
cannot continue to operate without any interest holders as there will
be 	no 	one 	authorized 	to 	make 	the 	ultimate 	decisions 	affecting 	the
Debtor’s 	future 	operations. 	The 	Plan 	provides 	that 	Dashiell 	will
continue 	to 	manage 	the 	Debtor 	after 	confirmation 	and 	that 	Dashiell
and 	Ham 	will 	serve 	on 	the 	Board. 	Thus, 	two 	of 	the 	three 	interest
holders will continue to control the Debtor after confirmation.
There 	are 	further 	provisions 	that 	are 	legally 	untenable. 	The
Plan provides that the bankruptcy estate will continue to exist after
confirmation and that the Debtor’s property will all be property of
the estate, including subsequently acquired property. 	The Plan does
not specify who will be in charge of this property. 	The Bankruptcy
Code provides that authority over property of a bankruptcy estate is
held 	either 	by 	a 	trustee 	or 	a 	debtor-in-possession. 	However, 	no
trustee has been appointed, and the Debtor will have changed into a
Reorganized Debtor. 	The Court does not believe that the Debtor can
act 	both 	in 	the 	capacity 	of 	a 	Reorganized 	Debtor 	and 	a 	debtor-in-
possession.
B. 	BANKFIRST’S OBJECTIONS
BankFirst 	contends 	that 	the 	Plan 	is 	simply 	a 	“hold 	and 	wait”
plan. 	It contends that the Plan was not filed in good faith and is
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not 	fair 	and 	equitable 	as 	to 	BankFirst, 	particularly 	given 	the
intended 	short 	term 	nature 	of 	BankFirst’s 	loan. 	It 	notes 	that 	the
Plan gives the Debtor an additional two years to do what it has not
been able to do in the past year and a half: i.e., raise sufficient
money to complete the work necessary to enable it to record a final
subdivision map. 	In the meantime, the Plan proposes that no payments
will be made to anyone. 	It does not even provide for any benchmarks
that must be met during the two year period. 	Moreover, there is no
evidence that the Plan is feasible.
BankFirst also notes that the Plan is a “negative amortization”
plan as to BankFirst. 	It contends that the Plan does not satisfy the
stringent requirements for a “negative amortization” plan. 	See Great
Western Bank v. Sierra Woods Group, 953 F.2d 1174, 1177-78 (9 th Cir.
1992)(holding that whether a “negative amortization” plan is fair and
equitable 	must 	be 	determined 	on 	a 	case-by-case 	basis). 	In 	Great
Western, 	the 	Ninth 	Circuit 	noted 	that 	courts 	considering 	negative
amortization 	plans 	have 	considered 	accrual 	or 	payment 	of 	a 	market
rate of interest to be a necessary, but not sufficient, requirement
for confirmation. 	Id. at 1177.
In 	addition, 	the 	Ninth 	Circuit 	cited 	with 	approval 	a 	list 	of
factors 	to 	be 	considered 	in 	determining 	whether 	a 	negative
amortization 	plan 	should 	be 	confirmed. 	In 	addition 	to 	accrual 	or
payment of a market rate of interest, those factors include whether
the 	amount 	and 	length 	of 	the 	proposed 	deferral 	is 	reasonable, 	the
ratio of the debt to value, whether the plan is feasible, the nature
of 	the 	collateral–-i.e., 	whether 	its 	value 	is 	appreciating,
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8More recently, in General Electric Capital Corp. v. Future
Media Productions, Inc., 536 F.3d 969, 973-74 (9 th Cir. 2008)(as
amended), the Court declined to extend this principle to secured
claims paid through sale of the collateral property outside the
plan. 	It remanded the case to the bankruptcy court to consider the
viability of the rule adopted by other Circuits, requiring payment
at default interest rate unless unenforceable under nonbankruptcy
law.
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depreciating, or stable, whether the risks are unduly shifted to the
secured 	creditor, 	and 	whether 	there 	are 	adequate 	safeguards 	to
protect the secured creditor against plan failure.
BankFirst also objects to the provision in the Plan eliminating
its right to default interest and its right to payment of costs and
attorneys’ 	fees. 	See 	In 	re 	Entz-White 	Lumber 	& 	Supply, 	Inc., 	850
F.2d 	1338 	(9 th 	Cir. 	1988). 8 	In 	Entz-White, 	the 	Ninth 	Circuit 	held
that 	a 	debtor 	need 	not 	pay 	interest 	at 	the 	default 	rate 	when 	the
claim was being paid in full at confirmation. 	850 F.2d at 1339-43.
However, 	the 	Plan 	does 	not 	propose 	to 	pay 	BankFirst’s 	claim 	at
confirmation.
In 	response 	to 	these 	objections, 	the 	Debtor 	contends 	that 	the
Plan 	does 	meet 	the 	requirements 	for 	a 	negative 	amortization 	plan.
BankFirst has a substantial equity cushion. 	It argues that the Plan
provides 	adequate 	safeguards 	for 	BankFirst 	by 	providing 	for 	post-
confirmation Court oversight and authorizing BankFirst to seek relief
from 	the 	post-confirmation 	bar 	on 	foreclosure 	for 	two 	years.
Moreover, it contends that the evidence presented at the confirmation
hearing was adequate to establish that the Plan is feasible.
At 	the 	confirmation 	hearing, 	the 	Debtor 	presented 	evidence 	of
three alternative plans for paying off BankFirst. 	One of the plans
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was 	to 	list 	the 	Real 	Property 	for 	sale. 	A 	proposed 	sale 	broker
testified 	at 	trial. 	A 	second 	plan 	was 	that 	IMC 	would 	advance 	$1.5
million, which it would obtain from its investors and which would be
secured by its second priority deed of trust. 	Finally, evidence was
presented 	that 	the 	Debtor 	and 	an 	entity 	known 	as 	Pacific 	First 	had
entered into an agreement for the sale of the Real Property subject
to Court approval. 	The purchase price had a cash element that would
permit BankFirst to be paid in full. 	The sale was required to close
at the outside by December 15, 2008.
The 	Court 	concludes 	that 	most, 	if 	not 	all, 	of 	BankFirst’s
objections 	have 	merit. 	The 	Plan 	does 	not 	satisfy 	the 	Entz-White
requirements for elimination of pre-existing default interest. 	As to
interest to accrue in the future, there is no evidence of the market
rate 	of 	interest. 	Clearly, 	the 	Plan 	must 	provide 	for 	payment 	of
attorneys’ fees and other costs.
In addition, considering all the relevant factors applicable to
a 	negative 	amortization 	plan, 	the 	Court 	finds 	that 	the 	Plan, 	as
presently 	drafted, 	is 	not 	fair 	and 	equitable 	as 	to 	BankFirst.
Although 	BankFirst 	has 	a 	substantial 	equity 	cushion 	at 	present, 	in
two years, if final map approval has not been obtained, the value of
the Real Property has fallen, and its debt has increased through the
accrual of interest, it may be under water. 	While two years does not
sound like a long time, it represents the entire period during which
final map approval may be obtained. 	This unduly shifts the risk of
plan failure to BankFirst.
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Just 	as 	important, 	the 	Debtor’s 	evidence 	of 	feasibility 	is
simply 	inadequate. 	The 	definition 	of 	the 	QLE 	Property 	Sale 	and
Recapitalization 	is 	so 	broad 	as 	to 	be 	virtually 	meaningless. 	The
Debtor cannot, by presenting multiple plans for dealing with the Real
Property, disguise the lack of evidence of feasibility as to any one
of these plans. 	As noted above, one of the plans is to sell the Real
Property through a sales broker. 	Yet, the Debtor has not yet applied
for 	approval 	of 	the 	sales 	broker’s 	employment. 	Another 	plan 	is 	to
obtain 	a 	$1.5 	million 	loan 	from 	IMC. 	Yet, 	IMC 	began 	soliciting
advances 	from 	its 	investors 	only 	shortly 	before 	the 	confirmation
hearing and had obtained only a fraction of the amount needed by the
time of the hearing. 	Similarly, the proposed sale to Pacific First
depended 	on 	Pacific 	First’s 	ability 	to 	obtain 	the 	$13 	million 	in
funding to cash out BankFirst’s debt. 	Yet, Pacific First had not yet
placed 	itself 	in 	a 	position 	to 	begin 	soliciting 	these 	funds. 	The
Court concludes that this evidence is simply inadequate to establish
feasibility.
CONCLUSION
Confirmation of the Plan will be denied. 	The structure of the
Plan is legally deficient in several respects. 	As presently drafted,
it 	does 	not 	satisfy 	the 	requirements 	for 	a 	negative 	amortization
plan. 	It must provide for payment of pre-petition default interest
and 	provide 	for 	payment 	of 	market 	rate 	of 	interest 	under 	the 	Plan.
Moreover, 	evidence 	must 	be 	presented 	as 	to 	the 	market 	rate 	of
interest. 	Finally, 	adequate 	evidence 	of 	feasibility 	must 	be
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presented: 	e.g., commitments of sufficient funding to either IMC or
Pacific Corp.
Clearly, 	Dashiell, 	the 	other 	equity 	holders, 	and 	IMC 	have
substantial money and time invested in this project. 	They appear to
be competent, knowledgeable developers who are simply suffering from
the difficult economic times. 	They have a strong economic incentive
to 	complete 	the 	project. 	The 	Court 	would 	like 	to 	see 	the 	Plan
amended 	to 	cure 	the 	legal 	deficiencies 	and 	to 	be 	presented 	with
sufficient evidence of feasibility to allow the Court to confirm the
Plan. 	However, in 	view of the time frame established by 11 U.S.C.
§ 	362(d)(3), 	the 	Court 	cannot 	give 	the 	Debtor 	more 	than 	30 	days 	to
file an amended plan to cure the legal problems. 	If the Debtor does
so 	and 	represents 	to 	the 	Court 	that 	it 	now 	can 	present 	sufficient
evidence 	of 	feasibility, 	the 	Court 	will 	reconvene 	the 	confirmation
hearing to allow that evidence to be presented. 	Otherwise, the Court
will be compelled to grant BankFirst relief from the automatic stay.
END OF DOCUMENT
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COURT SERVICE LIST
James D. Wood
Law Offices of James D. Wood
3675 Mt. Diablo Blvd. #250
Lafayette, CA 94549-3775
David M. Wiseblood
Seyfarth Shaw LLP
560 Mission St., Ste. 3100
San Francisco, CA 94105-2930
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