Diamond Oaks Vineyards, Inc.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
DIAMOND OAKS VINEYARDS, INC., 	No. 09-12995
Debtor(s).
______________________________________/
Memorandum on Motion for Relief From Stay
_________________
Chapter 11 debtor in possession Diamond Oaks Vineyards, Inc., is a Subchapter S corporation
wholly owned by Dinesh Maniar. It owns the real properties located at 4500 St. Helena Highway, and
4531 St. Helena Highway, Calistoga, California. The properties are working vineyards which produce
an annual crop.
In February of 2007, title to the properties was held by Maniar. He refinanced them at that
time with loans from Harford Life and Accident Insurance Company, which knew that Maniar
conducted his businesses through several Subchapter S corporations but nonetheless made the loans to
Maniar and insisted on a term in the loan agreements which forbade the transfer of the properties to
another entity without its consent despite Maniar’s attempt to negotiate more flexible terms.
In February of 2009, Maniar defaulted on the loans and foreclosure proceedings commenced.
In June of that year, Harford Life and Accident Insurance Company assigned its notes and deeds of
trust to Hartford Life, Inc.
On September 10, 2009, just days before foreclosure sale, Maniar deeded the properties to the
Entered on Docket
February 12, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-12995 Doc# 68 Filed: 02/12/10 Entered: 02/12/10 15:26:40 Page 1 of 3

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1The only basis of Hartford’s motion is alleged bad faith. It has produced no evidence of lack
of equity, an issue for which it bears the burden of proof pursuant to § 362(g)(1) of the Bankruptcy
Code. For purposes of this motion, the court must assume that there is equity.
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debtor for no consideration. This Chapter 11 was commenced on September 14, 2009. Hartford has
moved the court for relief from the automatic stay, arguing that this transfer and the bankruptcy filing
were done in bad faith. 1
Hartford is correct in arguing that stay relief should generally be granted if a pattern of conduct
known as “new debtor syndrome” is demonstrated. Typically, the new debtor syndrome involves a
transfer of distressed property into a newly created corporation on the eve of foreclosure for no
consideration; the debtor has no assets other than the transferred property; the debtor has no or
minimal unsecured debt and no employees or ongoing business and no means to service the debt. In re
Duvar Apt., Inc., 205 B.R. 196, 200 (9th Cir. BAP 1996).
There are a few problems with Hartford’s attempt to characterize this case as the classic
example of the new debtor syndrome. First of all, the debtor is not new; Hartford’s predecessor in
interest knew about it when the loan was made and contracted for the property to remain in Maniar’s
name notwithstanding Maniar’s request that he be allowed to make a reasonable transfer to another
entity. Secondly, the debtor has other assets, other debts, and employees. Lastly, it has an ongoing,
revenue-earning business.
Hartford’s real argument is that Maniar has breached the terms of the loan agreements
forbidding transfer of its collateral to another entity. There is certainly a confirmation issue as to
whether this is the sort of default which can be cured pursuant to § 1123(a)(5)(G) of the Bankruptcy
Code. 	While the debtor may not prevail on this issue, it is not bad faith to try.
The basic problem with Hartford’s motion is its presumption that it is entitled to relief from the
automatic stay if it demonstrates elements of new debtor syndrome. Hartford is entitled to relief it
demonstrates bad faith. In this case, Hartford fully concedes that Maniar is very seriously, perhaps
terminally, ill. It is clear that Maniar has not made the transfer to harm or defraud Hartford, but to
Case: 09-12995 Doc# 68 Filed: 02/12/10 Entered: 02/12/10 15:26:40 Page 2 of 3

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place the debtor in a position to continue to carry on its business and reorganize without him in the
event of his incapacitation or death. The new debtor syndrome can be evidence of bad faith. A good
faith attempt to reorganize is not subject to summary dismissal or stay relief merely because some
elements of new debtor syndrome may be present.
The court finds that this Chapter 11 case was commenced in good faith and for a proper
purpose. Accordingly, Hartford’s motion for relief from the automatic stay will be denied, without
prejudice to its right to seek relief on other grounds. Counsel for the debtor shall submit an
appropriate form of order.
Dated: February 12, 2010
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 09-12995 Doc# 68 Filed: 02/12/10 Entered: 02/12/10 15:26:40 Page 3 of 3