The U.S. Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”) affirmed the Central District of California bankruptcy court’s denial of a bank’s motion for relief from stay in a single asset real estate chapter 11 case because the bank failed to serve parties on the list of 20 largest unsecured creditors to the attention of an “officer, a managing or general agent,” or other authorized agent, as required under the applicable rules. Bank of America, N.A. v. LSSR, LLC (In re LSSR, LLC), BAP No. CC-12-1636 (9th Cir. BAP May 29, 2013). To read the full decision, click http://cdn.ca9.uscourts.gov/datastore/bap/2013/05/29/LSSR,%20LLC%20Memo%2012-1636.pdf
The chapter 11 debtor owned real property encumbered by a bank’s trust deed. The bank’s trust deed also encumbered real properties owned by affiliates of the debtor. The bank commenced a state court action against the debtor, its affiliates and other related entities (“Defendants”) for defaulting on their obligations under the trust deed. A resolution of that litigation required those Defendants to enter into a “Confession of Judgment” accepting joint and several liability to the bank for over $5,000,000, which the bank would file if the Defendants defaulted further.
The debtor filed a chapter 11 petition and the bankruptcy court determined it to be a single asset real estate debtor. Thereafter, the debtor’s manager paid the bank the monthly interest on the loan. The bank filed a motion for relief from stay claiming that the payment was both not enough and made by the debtor’s manager (rather than the debtor).
There were two unsecured creditors listed on the debtors’ schedules. The bank’s proof of service indicated service on the two unsecured creditors at their addresses but not to the attention of any officer or registered agent. The bankruptcy court denied the motion because: (1) the bank did not properly serve the 20 largest unsecured creditors; and (2) the debtor made the payment required in a single asset real estate case. See 11 U.S.C. § 362(d)(3). The bank appealed.
The BAP affirmed the bankruptcy court’s decision. The BAP found that the bank did not serve the motion in compliance with the Federal Rules of Bankruptcy Procedure (“FRBP”) and the Local Bankruptcy Rules of the United States Bankruptcy Court for the Central District of California (“LBR”). In a chapter 11 case, the FRBP and LBR require a motion for relief from stay to be served on the unsecured creditors committee or, if none is appointed, on the 20 largest creditors. Further, in a contested matter, such as a motion for relief from stay, service on a corporation or partnership must be “to the attention of an officer, a managing or general agent” or to an authorized agent for service of process. FRBP 4001(a)(1), 7004(b), 9014(b). The proof of service must also “explicitly indicate how each person who is listed on the proof of service is related to the case.” LBR 9013-3(c).
The BAP determined that service of the motion was defective because the bank did not indicate on the proof of service that the motion was mailed to “an officer, a managing or general agent or any other authorized agent” of the two unsecured creditors.
Although personal service is often not necessary in bankruptcy cases, this case is a reminder of the need to pay attention to detail, particularly the applicable federal and local rules, when executing service by United States mail.
These materials were prepared by Zev Shechtman (firstname.lastname@example.org) of Danning, Gill, Diamond & Kollitz, LLP, in Los Angeles, California. Editorial contributions were provided by ILC member Asa S. Hami of SulmeyerKupetz, PC, in Los Angeles, California.
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