in re: first street holdings nv, llc, 9th cir. bap (2012)

7/25/2019 In re: FIRST STREET HOLDINGS NV, LLC, 9th Cir. BAP (2012)

http://slidepdf.com/reader/full/in-re-first-street-holdings-nv-llc-9th-cir-bap-2012 1/30

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* Thi s di sposi t i on i s not appr opr i at e f or publ i cat i on.Al t hough i t may be ci t ed f or what ever per suasi ve val ue i t mayhave ( see Fed. R. App. P. 32. 1) , i t has no pr ecedent i al val ue.See 9t h Ci r . BAP Rul e 8013- 1.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP No. NC- 11- 1729- MkHPa)

FI RST STREET HOLDI NGS NV, LLC, ) Bk. No. 11- 49300et al . , ) ( j oi nt l y admi ni st er ed wi t h

) Bk. Nos. 11- 49301, 11- 70224,Debt or s. ) 11- 70228, 11- 70229, 11- 70231,

______________________________) 11- 70232, 11- 70233 & 11- 70234))

FI RST STREET HOLDI NGS NV, LLC; )LYDI AN SF HOLDI NGS, LLC; )78 FI RST STREET, LLC; 88 FI RST)

STREET, LLC; 518 MI SSI ON, LLC; )FI RST/ J ESSI E, LLC; J P CAPI TAL, )LLC; PENI NSULA TOWERS, LLC; )SI XTY- TWO STREET, LLC, )

)Appel l ant s, )

)v. ) MEMORANDUM *

)MS MI SSI ON HOLDI NGS, LLC, )

)Appel l ee. )

______________________________)

Ar gued and Submi t t ed on Oct ober 18, 2012at San Fr anci sco, Cal i f or ni a

Fi l ed – December 5, 2012

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Nor t her n Di st r i ct of Cal i f or ni a

Honor abl e Roger L. Ef r emsky, Bankr upt cy J udge, Presi di ng

Appear ances: Rober t G. Har r i s, Esq. of Bi nder & Mal t er , LLP

ar gued f or Appel l ant s; Har vey A. St r i ckon, Esq. of Paul Hast i ngs LLP ar gued f or Appel l ee.

Bef or e: MARKELL, HOLLOWELL and PAPPAS, Bankr upt cy J udges.

FILED

DEC 05 2012

SUSAN M SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT



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1Unl ess speci f i ed ot her wi se, al l chapt er and sect i onr ef er ences are t o t he Bankrupt cy Code, 11 U. S. C. §§ 101- 1532, andal l “Rul e” r ef er ences ar e t o t he Feder al Rul es of Bankrupt cyPr ocedur e, Rul es 1001- 9037. Al l “Ci vi l Rul e” ref er ences ar e t ot he Feder al Rul es of Ci vi l Pr ocedur e.

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INTRODUCTION

Debt or Fi r st St r eet Hol di ngs NV, LLC ( “Fi r st St r eet ”) and

i t s af f i l i at es (col l ect i vel y, “Fi rs t St reet Part i es”) seek revi ew

of an or der gr ant i ng r el i ef f r om t he aut omat i c st ay under11 U. S. C. § 362( d) ( 1) and ( 2) . 1 That order t er mi nat ed t he st ay

as t o al l of t he Fi r st St r eet Par t i es’ r eal pr oper t y

( “Proper t i es”) , whi ch al l owed t he movant , secur ed cr edi t or

MS Mi ssi on Hol di ngs, LLC ( “Mi ssi on”) , t o pr oceed wi t h f or ecl osur e

sal es agai nst t he Pr oper t i es. The or der al so t er mi nat ed t he st ay

as t o al l ot her pr oper t y of t he est at e i n whi ch Mi ssi on hel d a

secur i t y i nt er est . For t he r easons st at ed bel ow, we VACATE AND

REMAND f or f ur t her pr oceedi ngs.

FACTS

1. The key players and the underlying loan transaction

I n 2006, some of t he Fi r st St r eet Par t i es ent er ed i nt o a

l oan agr eement ( “Loan”) wi t h Mi ssi on’ s pr edecessor i n i nt er est

Capi t al Sour ce Fi nanci ng LLC ( “CSF”) . The pur pose of t he Loanwas t o enabl e t he Fi r st St r eet Par t i es t o r ef i nance t hei r

acqui si t i on of t he Pr oper t i es and t o f i nance cer t ai n devel opment

pl anni ng cost s. The Fi r st St r eet Par t i es hoped t o obt ai n al l of

t he ent i t l ement s and appr oval s necessar y to permi t t hemsel ves or

a f ut ur e owner of t he Pr oper t i es t o t ear down t he exi st i ng

bui l di ngs on t he Pr oper t i es and bui l d new, hi gher - densi t y,

hi gh- r i se of f i ce, r esi dent i al and hot el bui l di ngs. Accor di ng t o



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2 The seven Pr oj ect Ent i t i es wer e: ( 1) Si xt y- Two Fi r stSt r eet , LLC; ( 2) 78 Fi r st St r eet , LLC; ( 3) 88 Fi r st St r eet , LLC;( 4) Fi r st / J essi e, LLC; ( 5) 518 Mi ssi on, LLC; ( 6) J P Capi t al , LLC;and (7) Peni nsul a Tower s, LLC.

3 The t wo Hol di ng Ent i t i es wer e: ( 1) Fi r st St r eet Hol di ngsNV, LLC; and ( 2) Lydi an SF Hol di ngs.

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t he Fi r st St r eet Par t i es, t hei r pr ospect i ve devel opment pl an was

l i nked t o t he Ci t y and Count y of San Franci sco’ s Transi t Cent er

Di str i ct Pl an.

Seven of t he ni ne Fi r st St r eet Par t i es wer e bor r ower s undert he Loan. The Fi r st St r eet Par t i es r ef er r ed t o t hese seven

bor r owi ng ent i t i es as the pr oj ect- l evel ent i t i es (col l ecti vel y,

“Pr oj ect Ent i t i es”) . 2 The ot her t wo Fi r st St r eet Par t i es

essent i al l y wer e hol di ng compani es ( j oi nt l y, “Hol di ng

Ent i t i es”) . 3 Bet ween t hem, t he Hol di ng Ent i t i es hel d al l of t he

member shi p i nt er est s i n t he Proj ect Ent i t i es ( “Member shi p

I nt er ests”) .

The Loan was t o be made i n t he pr i nci pal amount of

$67. 1 mi l l i on, and over $52 mi l l i on was i mmedi at el y f unded at t he

t i me t he Loan t r ansact i on cl osed. At t he t i me of t he f i l i ng of

Mi ssi on’ s f i r st r el i ef f r om st ay mot i on, Mi ssi on cl ai med t hat t he

out st andi ng Loan bal ance exceeded $95 mi l l i on. For t hei r par t ,

t he Fi r st St r eet Par t i es admi t t ed t hat r oughl y $80 mi l l i on wasowed on t he Loan as of t he t i me of t hei r bankrupt cy f i l i ngs.

However , t he Fi r st St r eet Par t i es cl ai med t hat t he amount owed t o

Mi ssi on was subj ect t o a number of di f f er ent def enses,

count er cl ai ms, of f set s and an equi t abl e subor di nat i on cl ai m, al l

of whi ch woul d ef f ect i vel y reduce t he net amount owed by a



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4 The Fi r st St r eet Par t i es f ur t her admi t t ed t hat t hey had

def aul t ed on thei r i nt er est - onl y payment s under t he Loanbegi nni ng i n Apr i l 2008 and that t he l oan had mat ur ed i nMay 2009.

5 The Fi r st St r eet Par t i es al so cl ai med t hat Mi ssi on hel d asecur i t y i nt er est i n cer t ai n t r ansf er r abl e devel opment r i ght sal l egedl y wor t h $8 mi l l i on ( “TDR’ s”) . Mi ssi on di d notspeci f i cal l y addr ess t he TDR’ s i n any of i t s r el i ef f r om st aymot i ons, nor di d i t t al k about t hem i n i t s appeal br i ef . On t heot her hand, t he l anguage i n t he or der gr ant i ng Mi ssi on’ s r el i ef f r om st ay mot i on was br oad enough to per mi t Mi ss i on to enf or ce

any l i ens i t had agai nst any and al l pr oper t y of t he est at e,i ncl udi ng t he TDR’ s. We cannot t el l f r om t he br i ef s of ei t hersi de or f r om t he r ecor d whet her t he TDR’ s have been f or ecl osedupon or whet her Mi ss i on even has t r i ed t o f or ecl ose upon t he TDR’ s.

6For ease of r ef er ence, we col l ect i vel y r ef er t o al l of Mi ssi on’ s r el i ef f r om st ay mot i ons i n t he si ngul ar , as Mi ssi on’ s“rel i ef f r om st ay mot i on. ”

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si gni f i cant but unknown amount . 4

Among other t hi ngs, t he Loan was secur ed by deeds of t r ust

cover i ng t he Propert i es and by pl edge agr eement s cover i ng t he

Member shi p I nt er est s. Pr i or t o t he Fi r st St r eet Par t i es’bankrupt cy f i l i ngs, f or ecl osur e was i mmi nent on bot h t he

Proper t i es and t he Member shi p I nt er est s. 5

2. The bankruptcy filings and Mission’s relief from stay motions

The Hol di ng Ent i t i es f i l ed t hei r chapt er 11 bankrupt cy cases

on August 30, 2011, and t he Pr oj ect Ent i t i es f i l ed t hei r

chapt er 11 bankr upt cy cases r oughl y one mont h l at er , i n Sept ember

2011.

Mi ssi on soon f i l ed mot i ons f or r el i ef f r om st ay i n each of

t he bankr upt cy cases, whi ch t he bankrupt cy cour t consol i dat ed f or

hear i ng and determi nat i on. 6 Mi ssi on asser t ed t hat i t was

ent i t l ed t o r el i ef f r om st ay on t hr ee i ndependent gr ounds. These



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7As di scussed at l engt h bel ow, t he schedul i ng deadl i nes andt he bankr upt cy cour t ’ s schedul i ng or der became a maj or sour ce of cont ent i on, and our di sposi t i on of t hi s appeal hi nges on t hem.

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wer e: ( i ) § 362( d) ( 2) , because t he Fi r st St r eet Par t i es had no

equi t y i n t he Proper t i es and t hey wer e not necessar y f or an

ef f ect i ve reor gani zat i on; ( i i ) § 362( d) ( 1) , because cause exi st ed

due t o a l ack of adequat e pr ot ect i on of Mi ssi on’ s i nt er est i n t hePr oper t i es; and ( i i i ) § 362( d) ( 1) , because cause exi st ed wher e

t he bankr upt cy cases had been f i l ed i n bad f ai t h.

The bankrupt cy cour t hel d a prel i mi nar y hear i ng on

Oct ober 5, 2011 and a schedul i ng conf erence on Oct ober 12, 2011,

whi ch pr oduced var i ous schedul i ng deadl i nes and a schedul i ng

or der . I n set t i ng i t s schedul i ng deadl i nes and i ssui ng t he

schedul i ng or der , t he cour t endeavor ed t o enabl e the par t i es t o

compl et e al l r easonabl y necessary t r i al pr epar at i on i n t i me f or a

f i nal hear i ng t o be hel d on December 1 and 2, 2011. I f t hose

dat es wer e not suf f i ci ent , t he cour t r eser ved an addi t i onal dat e

of December 16, 2011 to be used i f necessary. 7

Af t er t he ent r y of t he schedul i ng or der , on November 9,

2011, t he Fi r st St r eet Par t i es f i l ed an obj ect i on t o Mi ssi on’ spr oof of cl ai m. I n addi t i on, t he Fi r st St r eet Par t i es f i l ed an

adver sary compl ai nt agai nst CSF, Mi ssi on and ot her s. I n r el evant

par t , t he Fi r st St r eet Par t i es sought equi t abl e subor di nat i on of

Mi ssi on’ s cl ai m. Bot h t he equi t abl e subor di nat i on compl ai nt and

t he cl ai m obj ect i on, however , were based on t he same t ype of

unsubst ant i at ed al l egat i ons as wer e st at ed i n t he Fi r st St r eet

Par t i es’ opposi t i on t o t he r el i ef f r om st ay mot i on.

Mor e i mpor t ant l y, t o bol st er i t s ar gument t hat i t had



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r eal i st i c pr ospect s of an ef f ect i ve r eor gani zat i on, on

November 29, 2011, t he Fi r st St r eet Par t i es f i l ed a dr af t j oi nt

di scl osur e st at ement and pl an of r eor gani zat i on.

The di scl osur e st at ement ’ s pl an summar y i dent i f i ed t hef ol l owi ng key pl an t er ms:

! Subst ant i ve Consol i dat i on of t he Fi r st St r eet Par t i es’

cases.

! Mont hl y payment of net r ent s t o Mi ss i on begi nni ng

ni net y days af t er pl an conf i r mat i on ( “Ef f ect i ve Dat e”) .

! On account of i nt erest payment s t o be pai d under t he

pl an, a l ump sum payment t o Mi ss i on of up t o $3 mi l l i on

at t he end of t he f i r st year af t er t he Ef f ect i ve Dat e,

and a l ump sum payment of up t o $5. 5 mi l l i on at t he end

of t he second year af t er t he Ef f ect i ve Dat e.

! The amount of t he l ump sum payment s t o be made under

t he pl an woul d be based on t he di f f erence between t he

appl i cabl e mar ket r at e of i nt er est as det er mi ned by thecour t and t he net r ent s pai d t o Mi ssi on.

! A f i nal l ump sum payment t o Mi ss i on on the t hr ee- year

anni ver sary of t he Ef f ect i ve dat e, whi ch payment woul d

f ul l y pay of f t he r emai ni ng bal ance owed t o Mi ss i on,

i ncl udi ng al l r emai ni ng i nt er est , f ees and char ges

owed, but al so af t er l i qui dat i ng and account i ng f or al l

def enses, count er cl ai ms and of f set s t hat t he Fi r st

St r eet Par t i es cl ai med t o hol d agai nst Mi ssi on.

! Fundi ng of t he Pl an by rent i ng out al l exi st i ng and

f ut ur e r ent al space avai l abl e i n t he bui l di ngs on t he

Pr oper t i es.



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8 The bankr upt cy cour t excl uded most of Choo’ s di r ectt est i mony when i t gr ant ed Mi ss i on’ s mot i ons i n l i mi ne number s2 & 3. The Fi r st St r eet Par t i es chal l enged t hese evi dent i ar yr ul i ngs on appeal , but i n l i ght of our di sposi t i on of t hi sappeal , we do not need t o reach t hi s i ssue.

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3. The final relief from stay hearing

The f i nal hear i ng on Mi ssi on’ s r el i ef f r om st ay mot i on was

hel d as schedul ed on December 1 and 2, 2011. The t enor of t he

pr oceedi ngs shi f t ed si gni f i cant l y, however , when t he bankrupt cycour t gr ant ed Mi ssi on’ s mot i ons i n l i mi ne seeki ng t o excl ude al l

of t he t est i mony of t he Fi r st St r eet Par t i es’ non- appr ai ser

exper t wi t nesses. The bankrupt cy cour t excl uded t hi s t est i mony

on t he basi s t hat t he Fi r st St r eet Par t i es had not t i mel y

di scl osed t hei r i nt ent t o cal l any non- appr ai ser exper t s as

wi t nesses. I n hol di ng t hat t he di scl osur e was unt i mel y, t he

cour t r el i ed upon an or al schedul i ng deadl i ne t hat was not

i ncl uded i n t he cour t ’ s wr i t t en schedul i ng or der .

The cour t di d al l ow non- exper t decl ar at i ons i n l i eu of l i ve

di r ect t est i mony, and hear d l i ve t est i mony on cr oss- exami nat i on

and on r edi r ect exami nat i on f r om Mi ssi on’ s per ci pi ent wi t ness

J ohn Her r and f r om t he Fi r st St r eet Par t i es’ per ci pi ent wi t ness

Davi d Choo.8

The cour t al so hear d t he exper t t est i mony of Mi ssi on’ s appr ai ser Rober t Far wel l ( “Far wel l ”) and of t he Fi r st

St r eet Par t i es’ appr ai ser Donn Byr ne, J r . ( “Byr ne”) . The cour t

accept ed i nt o evi dence bot h exper t appr ai sal s.

The bankrupt cy cour t st at ed i t s r ul i ng on val uat i on of t he

Pr oper t i es at t he begi nni ng of t he second day of t r i al , on

December 2, 2011. The cour t f ound t hat both appr ai ser s were good

expert wi t nesses and that t hey had submi t t ed good appr ai sal



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9 The draf t EI R ( her ei naf t er r ef er r ed t o as t he “EI R”) wasi ssued by the Ci t y and Count y of San Fr anci sco’ s Pl anni ngDepar t ment i n conj unct i on wi t h t hei r dr af t Tr ansi t Cent erDi st r i ct Pl an. Bot h of t hese document s ar e di scussed i n mor edet ai l i n our mer i t s di scussi on, i nf r a.

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r epor t s. But t he cour t ul t i mat el y hel d t hat i t woul d accept

Far wel l ’ s $70. 7 mi l l i on val uat i on of t he Pr oper t i es “as bei ng t he

best evi dence as t o what t he cur r ent val ue of t he subj ect

pr oper t y at t he t i me t hi s mot i on f or r el i ef f r om st ay was f i l edand i s bei ng det er mi ned . . . . ” Tr i al Tr ans. ( Dec. 2, 2011) at

7: 5- 8.

Cr i t i cal t o t hi s appeal , t he bankr upt cy cour t essent i al l y

r ej ect ed Byr ne’ s $140 mi l l i on val uat i on as bei ng t oo specul at i ve

and hypot het i cal :

[ W] hat t r oubl ed t he Cour t wer e t he speci f i c assumpt i ons

t hat Mr . [ Byr ne] was r equi r ed t o make. Speci f i cal l y, hewas t o assume that t he dr af t EI R, 9 whi ch i s Exhi bi t #4,had been [appr oved] , and he was t o make speci f i cassumpt i ons about t he square f oot age about t hebui l di ng, ef f ect i vel y, or t he - - what coul d be bui l tupon, whi ch i s appr oxi mat el y a seven- f ol d i ncr ease of t he exi st i ng f l oor space of exi st i ng bui l di ngs on t heDebt or s' pr oper t i es. And i n doi ng t hat , he came up wi t ha hypot het i cal val uat i on of $140 mi l l i on.

The probl em i s, as i s al so set out i n t he draf t EI R, i nt he i nt ended uses of t he EI R and t he appr oval sr equi r ed, Mr . [ Byrne] acknowl edged t hat t here wer e

st i l l 14 poi nt s, whi ch ar e set out at Page 49 of t hedr af t EI R, I bel i eve i t ' s i n Chapt er 2, t he Pr oj ectDescr i pt i on under Subsect i on " I nt ended Use of t he EI R,Proof or Requi r ement s" t hat had not been made. Therest i l l needed t o be amendment s t o t he general pl an, adet er mi nat i on of t he consi st ency of t he pr oposedgener al pl an amendment s and t he r ezoni ng of t he gener alpl an and Pl anni ng Code Sect i on 1. 1. 1 of t he pr i or i t ypol i ci es of t he Pl anni ng Commi ss i on, amendment s of t hePl anni ng Code t o cr eat e new hei ght i n bot h di st r i ct sgr eat er t han t he cur r ent maxi mum 550 f eet , est abl i shbui l di ng set - back, separ at i on of t ower r equi r ement s t ot he bui l di ngs t al l er t han 550 f eet , and i t goes on f r om

t her e.



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Tr i al Tr ans. ( Dec. 2, 2011) at 4: 22- 5: 19; see al so i d. at 5: 20-

6: 15 ( l i st i ng numer ous ot her EI R cont i ngenci es) . However , i f t he

bankr upt cy cour t had admi t t ed t he excl uded non- appr ai ser expert

t est i mony, much of Byrne’ s $140 mi l l i on val uat i on coul d have beencor r obor at ed.

For pur poses of det er mi ni ng whet her t he Fi r st St r eet Par t i es

had any equi t y i n t he Proper t i es, t he bankrupt cy cour t f ound t hat

t he Fi r st St r eet Par t i es had admi t t ed i n a ver i f i ed compl ai nt

t hey f i l ed i n st at e cour t t hat t he mi ni mum amount owed t o Mi ss i on

was $77. 9 mi l l i on.

Al so cri t i cal t o t hi s appeal , t he bankr upt cy cour t r ej ected

t he Fi r st St r eet Par t i es’ ar gument t hat t he amount of Mi ssi on’ s

cl ai m f or pur poses of det er mi ni ng equi t y i n t he Pr oper t i es shoul d

be r educed on account of t he Fi r st St r eet Par t i es al l eged

def enses, of f set s, count er cl ai ms and Fi r st St r eet ’ s equi t abl e

subor di nat i on cl ai m. The cour t r ej ect ed t hi s ar gument i n par t

because, havi ng gr ant ed t he mot i on i n l i mi ne excl udi ng t he Fi r stSt r eet Par t i es’ non- appr ai ser exper t t est i mony, t he Fi r st St r eet

Par t i es had of f er ed no admi ssi bl e evi dence t o suppor t t hei r

al l eged def enses, of f set s, count er cl ai ms and equi t abl e

subor di nat i on cl ai m.

The bankrupt cy cour t al so f ound t hat t he Fi r st St r eet

Par t i es had not pr oven t hat t hey had a r easonabl e possi bi l i t y of

an ef f ect i ve r eor gani zat i on wi t hi n a r easonabl e t i me. The cour t

not ed t hat t he pr oposed pl an l i kel y qual i f i ed as a negat i ve

amor t i zat i on pl an, whi ch woul d be di f f i cul t t o conf i r m under t he

best of ci r cumst ances. The cour t al so not ed t hat t he Pr oper t i es

as of t he t i me of t he hear i ng di d not generate enough mont hl y



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r ent s t o pay mont hl y operat i ng expenses and pr oper t y t axes. The

cour t al so doubt ed t hat t he Fi r st St r eet Par t i es coul d r ai se

suf f i ci ent pl an f undi ng, as t hey had pr oposed, by rent i ng out

addi t i onal avai l abl e space i n t he bui l di ngs on t he Pr oper t i es. The bankrupt cy cour t al so based i t s r eorgani zat i on f i ndi ng

on t he EI R cont i ngenci es and on t he specul at i ve nat ur e of t he

Fi r st St r eet Par t i es’ devel opment pl ans:

Frankl y, t her e ar e j ust t oo many uncer t ai nt i es t hatexi st at t hi s t i me. As t he Cour t has not ed wi t hr espect t o t he dr af t EI R, t her e ar e st i l l 14 hur dl est hat need to be over come bef ore t he dr af t EI R can beconf i r med. And t here' s been argument t hat t he dr af t

EI R mi ght be appr oved wi t hi n t he next t hr ee t o f ourmont hs, but agai n, t her e' s t est i mony that i t shoul dhave been approved over t wo year s ago. And gi ven t hepr esent economy i n San Fr anci sco and Nor t hernCal i f or ni a and t he count r y as a whol e, t he Cour t hasser i ous concerns whether i t woul d be ser i ous money t hatwoul d come i n t o t r y to devel op such a pr oj ect wi t hi nt he next t hr ee, f our or f i ve year s, i f at al l , unl esst hi ngs mar kedl y i mpr ove, especi al l y her e i n the SanFr anci sco Bay Ar ea.

Tr i al Tr ans. ( Dec. 2, 2011) at 113: 20- 114: 7.

The bankrupt cy cour t r ul ed agai nst al t er nat el y grant i ngr el i ef f r om st ay on t he gr ounds of bad f ai t h. Accor di ng t o t he

cour t , t her e had been no showi ng of bad f ai t h by t he Fi r st St r eet

Par t i es.

But t he bankr upt cy cour t di d al t er nat el y gr ant r el i ef f r om

st ay under § 362( d) ( 1) based on l ack of adequat e pr ot ect i on. The

cour t expl ai ned:

Sect i on 363( e) of t he Bankrupt cy Code r equi r es t hat t heDebt ors provi de adequate pr otect i on t o Movant as acondi t i on of t he Debt or ' s use of t he pr oper t y. TheDebt or ' s revenue st r eam f r om t he pr oper t y i si nsuf f i ci ent t o even cover oper at i ng expenses, aspr evi ousl y not ed, l et al one t o pr ovi de adequat epr otect i on t o Movant , and the Debt ors have no ot hersour ce of i ncome ot her t han t he pr oposed sal e of poss i bl y t he 81st pr opert y or t he TDRs. The Debt or s



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10 Thi s r ul i ng di d not seem t o be i n accor d wi t h t he f act s.As an appar ent l y under secur ed cr edi t or , Mi ssi on onl y was ent i t l edt o adequat e pr ot ect i on payment s t o t he extent i t s i nt er est i n t he

Pr oper t i es was depr eci at i ng f r om t he pet i t i on dat e. See Fi r stFed. Bank of Cal . v. Wei nst ei n ( I n r e Wei nst ei n) , 227 B. R. 284,296 ( 9t h Ci r . BAP 1998) ( ci t i ng Uni t ed Sav. Ass' n of Tex. v. Ti mber s of I nwood For est Assocs. , Lt d. , 484 U. S. 365, 382( 1988) ) . The bankrupt cy cour t made no f i ndi ng t hat t heProper t i es wer e depr eci at i ng, nor ar e we awar e of any evi dence i nt he r ecor d t o t hat ef f ect . Nonet hel ess, i n l i ght of ourdi sposi t i on of t hi s appeal , we need not f ur t her addr ess t hebankrupt cy cour t ’ s adequat e pr ot ect i on r ul i ng.

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have no assets f r omwhi ch to make post pet i t i on payment st o any par t y, and no equi t y cushi on exi st s t o pr ot ectt he Movant .

Tr i al Tr ans. ( Dec. 2, 2011) at 115: 3- 12. 10

The bankrupt cy cour t enter ed i t s or der grant i ng r el i ef f r omst ay on December 7, 2011, and the Fi r st St r eet Par t i es t i mel y

appeal ed on December 20, 2011.

JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on pur suant t o 28 U. S. C.

§§ 1334 and 157( b) ( 2) ( G) . We have j ur i sdi ct i on under 28 U. S. C.

§ 158, subj ect t o t he di scussi on set f or t h i mmedi at el y bel ow.

Dur i ng t he cour se of t hi s appeal , af t er t he Fi r st St r eet

Par t i es advi sed t he Panel t hat Mi ssi on had compl et ed i t s

f or ecl osur e sal es of t he Pr oper t i es, t he Panel i ssued an or der

di r ect i ng t he Fi r st St r eet Par t i es t o expl ai n why t he f or ecl osur e

sal es di d not r ender t hi s appeal moot . Af t er t he Fi r st St r eet

Par t i es r esponded, a mot i ons panel i ssued an order deemi ng t he

moot ness i ssue sat i sf i ed.We adopt t he mot i ons panel ’ s moot ness r ul i ng. General l y

speaki ng, an appeal f r om an order denyi ng or t er mi nat i ng an

i nj unct i on becomes moot when t he act i on sought t o be enj oi ned



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11We must acknowl edge t hat our concl usi on r egardi ng moot nessl eaves us wi t h l i t t l e sat i sf acti on. Gi ven t hat al l of t hePr oper t i es have been f or ecl osed upon, t he pot ent i al t hatr emandi ng t hi s mat t er woul d have any pr act i cal or benef i ci ali mpact on any par t y seems r emot e. Nonet hel ess, i n l i ght of t heest abl i shed st andar d of pr oof f or decl ar i ng a mat t er moot , we seeno al t er nat i ve t o t he concl usi on we have r eached.

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al r eady has occur r ed. Vegas Di amond Pr ops. , LLC v. F. D. I . C. ,

669 F. 3d 933, 936 ( 9t h Ci r . 2012) ; see al so Mur phy v. Hunt ,

455 U. S. 478, 481 ( 1982) ( hol di ng t hat a case t ypi cal l y becomes

moot when t he i ssue pr esent ed no l onger i s “ l i ve” or when t hepar t i es l ack a cogni zabl e i nt er est i n t he case’ s out come) .

Not wi t hst andi ng t he sal e of t he Proper t i es her e, we have no

evi dence of t he sal e of t he ot her col l at er al secur i ng Mi ssi on’ s

cl ai m. No one has advi sed us t hat al l of t he Membershi p

I nt er est s or t he TDR’ s have been sol d. As a r esul t , we cannot

concl ude t hat t hi s appeal i s moot . Cf . Mot or Vehi cl e Cas. Co. v.

Thor pe I nsul at i on Co. ( I n r e Thor pe I nsul at i on Co. ) , 677 F. 3d

869, 882 ( 9t h Ci r . 2012) ( st at i ng t hat t he par t y seeki ng

di smi ssal of an appeal based on moot ness must demonst r ate t hat

t he appeal i s moot ) . Accor di ngl y, we wi l l pr oceed t o consi der

t he mer i t s of t he appeal . 11

ISSUES

1. Di d t he bankrupt cy cour t abuse i t s di scr et i on when i tgr ant ed Mi ssi on’ s rel i ef f r om st ay mot i on?

2. Di d t he bankrupt cy cour t abuse i t s di scr et i on when i t

excl uded t he exper t t est i mony of t he Fi r st St r eet Par t i es’

non- appr ai ser exper t s?



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STANDARDS OF REVIEW

Thi s Panel r evi ews t he bankrupt cy cour t ’ s r el i ef f r om st ay

or der f or abuse of di scret i on. Fi r st Yor kshi r e Hol di ngs, I nc. v.

Paci f i ca L 22, LLC ( I n r e Fi r st Yor kshi r e Hol di ngs, I nc. ) ,470 B. R. 864, 868 ( 9t h Ci r . BAP 2012) . Thi s Panel al so r evi ews

t he bankrupt cy cour t ’ s evi dent i ar y rul i ngs f or abuse of

di scret i on. J ohnson v. Nei l son ( I n r e Sl at ki n) , 525 F. 3d 805,

811 ( 9t h Ci r . 2008) ( ci t i ng Lat man v. Bur det t e, 366 F. 3d 774, 786

( 9t h Ci r . 2004) ) .

Under t he abuse of di scr et i on st andar d of r evi ew, we f i r st

"det er mi ne de novo whet her t he [ bankrupt cy] cour t i dent i f i ed t he

cor r ect l egal r ul e t o appl y t o t he r el i ef r equest ed. " Uni t ed

St at es v. Hi nkson, 585 F. 3d 1247, 1262 ( 9t h Ci r . 2009) ( en banc) .

And i f t he bankr upt cy cour t i dent i f i ed t he cor r ect l egal r ul e, we

t hen det ermi ne under t he cl ear l y er r oneous s t andard whet her i t s

f actual f i ndi ngs and i t s appl i cat i on of t he f act s t o t he r el evant

l aw wer e: "( 1) i l l ogi cal , ( 2) i mpl ausi bl e, or ( 3) wi t hout suppor ti n i nf er ences t hat may be dr awn f r om t he f act s i n t he r ecor d. "

I d. ( i nt er nal quot at i on mar ks omi t t ed) .

DISCUSSION

We f i r st consi der t he Fi r st St r eet Par t i es’ cont ent i on t hat

t he bankr upt cy cour t i mpr oper l y excl uded t he t est i mony of t hei r

non- appr ai ser exper t s.

At t he December 1, 2011 hear i ng, t he bankr upt cy cour t

gr ant ed Mi ssi on’ s mot i ons i n l i mi ne whi ch sought t o excl ude t he

decl ar at i on t est i mony of t he Fi r st St r eet Par t i es’ f our

non- appr ai ser exper t wi t nesses ( col l ect i vel y, “Non- Appr ai ser

Exper t s”) . The cour t hel d t hat t he Fi r st St r eet Par t i es had not



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t i mel y di scl osed t hei r i nt ent t o cal l t he Non- Appr ai ser Exper t s

as wi t nesses. Accor di ng t o t he cour t , t hi s l ack of t i mel y

di scl osur e j ust i f i ed t he excl usi on of al l Non- Appr ai ser Exper t

t est i mony. The Fi r st St r eet Par t i es’ Non- Appr ai ser Exper t s i ncl uded:

1. J ohn Gr azi ano ( “Gr azi ano”) – a r eal est at e br oker who

descr i bed hi msel f as an exper t r egar di ng t he servi ci ng

of commerci al r eal est ate l oans and who pr oposed t o

t est i f y r egar di ng CSF’ s al l egedl y i mpr oper ser vi ci ng of

t he Loan.

2. Randy Sugar man ( “Sugar man”) - who descr i bed hi msel f as

a Cer t i f i ed Publ i c Account ant , a Cer t i f i ed Fraud

Exami ner , and a Cer t i f i ed I nsol vency and Reor gani zat i on

Account ant . Sugarman pr oposed t o t est i f y r egar di ng,

among other t hi ngs, Mi ss i on’ s account i ng of t he amount

i t cl ai med was owed under t he Loans.

3. D. Paul Regan ( “Regan”) - who descr i bed hi msel f as aCer t i f i ed Publ i c Account ant and a Cer t i f i ed Fraud

Exami ner . Si mi l ar t o Sugarman, Regan pr oposed t o

t est i f y r egar di ng the account i ng on whi ch Mi ssi on’ s

cl ai m was based.

4. Mi chael J . Bur ke ( “Bur ke”) who descri bed hi msel f as a

l i censed at t or ney wi t h over t hi r t y year s of exper i ence

i n l and use devel opment , zoni ng, and r eal est at e l aw i n

San Franci sco.

Bur ke’ s proposed t est i mony seemed par t i cul ar l y per t i nent t o

t he par t i es’ ongoi ng di sput e over val uat i on of t he Pr oper t i es,

whi ch i n t ur n i mpl i cat ed t he cour t ’ s f i ndi ngs on sever al key



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i ssues, i ncl udi ng t he Fi r st St r eet Par t i es’ l ack of equi t y i n t he

Pr oper t i es, t he Fi r st St r eet Par t i es’ pr ospects f or an ef f ecti ve

r eor gani zat i on, and whet her Mi ssi on’ s i nt er est i n t he Pr oper t i es

was adequatel y pr otected. Bur ke’ s pr oposed exper t t est i monyof f er ed a r el at i vel y st r ai ght f or war d expl anat i on of t he al l eged

l i nk bet ween t he var i ous dr af t devel opment pl ans af f ect i ng t he

Pr oper t i es and t he val ue of t he Pr oper t i es.

Mor e speci f i cal l y, Bur ke was pr epar ed t o t est i f y r egar di ng

what he descr i bed as t he i mpendi ng appr oval of San Fr anci sco’ s

Dr af t Tr ansi t Cent er Di st r i ct Pl an ( “TCD Pl an”) and t he i mpendi ng

cer t i f i cat i on of t he EI R accompanyi ng t he TCD Pl an. Accor di ng t o

Bur ke, “[ i ] t i s i nconcei vabl e t o me t hat t he [ TCD Pl an] wi l l not

be adopt ed. ” Bur ke Decl . ( Nov. 18, 2011) at ¶ 7.

Fur t her mor e, Bur ke pr edi ct ed t hat t he San Fr anci sco Pl anni ng

Commi ss i on woul d cer t i f y t he EI R by Febr uary 2012 and that t he

San Fr anci sco Boar d of Supervi sor s woul d appr ove the TCD Pl an by

Apr i l or May 2012. I d. at ¶¶ 8, 11. Bur ke f ur t her st at ed t hatt he appr oval of t he TCD Pl an woul d r esul t i n t he rezoni ng of t he

TCD Pl an ar ea, whi ch i ncl uded t he si t e on whi ch t he Fi r st St r eet

Par t i es’ Pr oper t i es wer e l ocat ed ( r ef er r ed t o i n Bur ke’ s

decl ar at i on as t he “50 Fi r st St r eet Si t e”) . I d. at ¶ 3. As Bur ke

put i t , t he r ezoni ng woul d, i n t ur n, i mmedi at el y i ncr ease t he

val ue of t he Proper t i es because the r ezoni ng woul d i ncr ease the

per mi t t ed devel opment densi t y on t he Proper t i es by r ai si ng bot h

exi st i ng hei ght l i mi t s and Fl oor - t o- Ar ea Rat i o l i mi t s, known as

“FARs. ” I d. at ¶¶ 5, 6.

We have pai nst aki ngl y revi ewed t he r ecor d i n or der t o f ul l y

under st and al l of t he event s l eadi ng up t o t he bankrupt cy cour t ’ s



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12 The r ecor d does not i ncl ude an of f i ci al t r anscr i pt of t he

Oct ober 12 Conf er ence, but i t does i ncl ude an unof f i ci alt r anscr i pt pr epar ed and of f er ed by the Fi r st St r eet Par t i es( “Oct ober 12 Tr anscr i pt ”) . Mi ssi on has not obj ect ed t o t heOct ober 12 Tr anscr i pt or chal l enged i t s accur acy, so we wi l laccept i t as a gener al l y accur at e t r anscr i pt i on of t he Oct ober 12Conf er ence. Whi l e t her e ar e cer t ai n appar ent omi ssi ons andi naccur aci es, t he key poi nt s and t hemes ar e rei t er at ed sever alt i mes and there can be no reasonabl e doubt as t o what mater i al l yt r anspi r ed.

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excl usi on of t he Non- Appr ai ser Exper t t est i mony. The most

si gni f i cant event s i ncl uded:

• The st at us and schedul i ng conf er ence hel d on Oct ober 12,

2011;12

• The schedul i ng or der ent er ed on Oct ober 14, 2011;

• The mot i on t o cor r ect or cl ar i f y t he October 14 schedul i ng

order f i l ed by Mi ss i on on November 7, 2011;

• The or der amendi ng t he Oct ober 14 schedul i ng or der ent er ed

on November 9, 2011;

• The Fi r st St r eet Par t i es’ November 17, 2011 mot i on t o

cor r ect or cl ar i f y t he amended schedul i ng or der ;

• The or der denyi ng t he Fi r st St r eet Par t i es’ November 17

mot i on ent er ed on November 18, 2011;

• The Fi r st St r eet Par t i es’ November 17 and 18, 2011 f i l i ng

and ser vi ce of t hei r Non- Appr ai ser Exper t Decl ar at i ons;

• Mi ssi on’ s November 29, 2011 mot i ons i n l i mi ne number s 5 - 8;

• The Fi r st St r eet Par t i es’ November 30, 2011 opposi t i on t ot he mot i ons i n l i mi ne;

• The December 1, 2011 hear i ng on mot i ons i n l i mi ne number s

5 - 8, hel d i n t he mi dst of t he f i nal r el i ef f r om st ay

hear i ng.



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13A f ul l nar r at i ve summary of r el evant event s and document si s at t ached t o t hi s deci si on as an Appendi x.

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Recount i ng al l of t he t or t uous f act s ar i si ng f r om t hese

event s woul d be undul y l engt hy and conf usi ng, so t hi s Panel

i nst ead wi l l f ocus on t he key poi nt s – t hose essent i al f act s

whi ch are not subj ect t o reasonabl e di sput e and on whi ch ourdeci si on hi nges. 13

At t he Oct ober 12 schedul i ng conf erence, t he bankr upt cy

cour t r epeat edl y expr essed concer n r egar di ng i t s dut y under

§ 362( e) ( 1) t o hol d t he f i nal r el i ef f r om st ay hear i ng wi t hi n

t hi r t y days of t he pr el i mi nar y hear i ng. The cour t was awar e of

no compel l i ng ci r cumst ances t hat woul d have per mi t t ed i t t o

ext end t he f i nal hear i ng beyond December 1, 2 and 16, 2011, whi ch

wer e t he f i r st t hr ee days avai l abl e on t he bankrupt cy cour t ’ s

cal endar f or t he cour t t o hear t he mat t er . The Fi r st St r eet

Par t i es have not chal l enged t he cour t ’ s det er mi nat i on t hat i t

needed t o hear t he mat t er on t he f i r st dat es i t had avai l abl e.

Wi t h t he concer n r egar di ng § 362( e) ( 1) i n mi nd, t he

bankrupt cy cour t or al l y st at ed at t he Oct ober 12 conf er encevar i ous deadl i nes f or di scl osur e of wi t nesses, t he exchange of

wi t ness decl ar at i ons, t he deposi ng of wi t nesses, and so on.

The bankrupt cy cour t ’ s Oct ober 14, 2011 schedul i ng or der di d

not t r ack what t he cour t st at ed on t he recor d on Oct ober 12.

Thi s schedul i ng or der not onl y was i nter nal l y i nconsi st ent but

al so was i nconsi st ent wi t h t he var i ous deadl i nes t he cour t or al l y

st at ed on Oct ober 12. Despi t e t hi s, Mi ssi on wai t ed unt i l

November 7, 2011 to f i l e a mot i on addr essi ng these pr obl ems wi t h



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t he Oct ober 14 schedul i ng or der . I n r esponse, t he bankrupt cy

cour t r evi sed i t s Oct ober 14 schedul i ng order on November 9.

The Fi r st St r eet Par t i es wai t ed even l onger , unt i l

November 17, 2011, t o f i l e t hei r mot i on t o cor r ect or cl ar i f y t heOct ober 14 schedul i ng order , as amended by t he cour t on

November 9, 2011. Accor di ng t o t he Fi r st St r eet Par t i es, t hey

were not concer ned about t he cont ent s of t he Oct ober 14

schedul i ng or der unt i l t he cour t amended t hat or der on

November 9, 2011.

Bef or e t he Fi r st St r eet Par t i es f i l ed t hei r Non- Appr ai ser

Exper t decl arat i ons on November 17 and 18, 2011, t hey made no

at t empt t o di scl ose t he i dent i t y or exi st ence of t hei r

Non- Appr ai ser Exper t s. Thi s conduct was i nconsi st ent wi t h:

( 1) t he bankrupt cy cour t ’ s oral deadl i ne, st at ed on Oct ober 12,

2011, f or bot h par t i es t o di scl ose thei r exper t and non- exper t

wi t nesses by no l ater t han Oct ober 31, 2011; and ( 2) t he general

i nt ent of t he cour t t o have bot h par t i es avoi d unnecessarysur pr i ses and del ay by di scl osi ng t he i dent i t y of al l of t hei r

wi t nesses, exper t and non- exper t , as soon as pr act i cabl e.

I n excl udi ng al l of t he Fi r st St r eet Par t i es’ Non- Appr ai ser

Exper t t est i mony, t he bankrupt cy cour t i n essence rel i ed upon and

enf or ced i t s oral deadl i ne, st at ed on Oct ober 12, 2011, f or bot h

par t i es t o di scl ose t hei r exper t and non- exper t wi t nesses by no

l at er t han Oct ober 31, 2011. But t her e was not hi ng on t he f ace

of t he Oct ober 14 schedul i ng or der pr ovi di ng any deadl i ne f or

di scl osi ng t he i dent i t y of non- appr ai ser exper t s. When t he cour t

amended t he Oct ober 14 schedul i ng order on November 9, 2011, i t

sua spont e del et ed any pr ovi si on t hat woul d have per mi t t ed ei t her



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si de t o i dent i f y any non- appr ai ser exper t wi t ness. Thi s t oo

amount ed t o enf orcement of t he Oct ober 12 or al schedul i ng

deadl i nes. As f ar as t he cour t was concer ned, t he par t i es had i n

essence wai ved t hei r r i ght t o cal l any non- appr ai ser exper twi t nesses by not di scl osi ng t hem by Oct ober 31, 2011.

Wi t h t hese f act s and ci r cumst ances i n mi nd, we must hol d

t hat t he cour t er r ed as a mat t er of l aw when i t excl uded t he

Fi r st St r eet Par t i es’ Non- Appr ai ser Exper t t est i mony. We know of

no r ul e or case aut hor i t y t hat per mi t s a cour t t o excl ude a

si gni f i cant por t i on of a par t y’ s evi dence as a means of enf or ci ng

an or al schedul i ng deadl i ne when t he cour t di d not i ncl ude t hat

deadl i ne i n i t s subsequent wr i t t en schedul i ng or der . As a mat t er

of l aw, a f or mal wr i t t en or der cont r ol s over an i nconsi st ent or al

r ul i ng. See Cashco Fi n. Ser vs. , I nc. v. McGee ( I n r e McGee) ,

359 B. R. 764, 774 n. 9 ( 9t h Ci r . BAP 2006) ; see al so Rul e 9021

( st at i ng t hat j udgment s and order s are ef f ect i ve when ent er ed on

t he docket by t he cl er k) . The Oct ober 14 schedul i ng or der cont ai ned a provi si on,

par agr aph 10( b) , whi ch per mi t t ed t he par t i es t o f i l e and serve

non- appr ai ser expert decl arat i ons by no l ater t han November 29,

2011. But t he same or der di d not cont ai n any deadl i ne f or ei t her

si de t o di scl ose t he i dent i t i es of t he non- appr ai ser exper t

wi t nesses who woul d pr ovi de t hese decl ar at i ons. Thus, by

omi t t i ng t he di scl osur e deadl i ne, t he Oct ober 14 schedul i ng or der

was i nconsi st ent wi t h t he bankrupt cy cour t ’ s Oct ober 12 or al

schedul i ng deadl i nes.

Nei t her si de has ci t ed us t o any rul e or case aut hor i t y t hat

woul d permi t t he t ype of deadl i ne enf orcement t he bankr upt cy



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14We not e t he addi t i onal pr obl em t hat t he most r el evantr ul e ci t ed, Rul e 7016, onl y appl i es i n Rul e 9014 cont est ed

mat t er s when t he cour t expl i ci t l y di r ect s t hat i t wi l l appl y.See Rul e 9014( c) . Ther e was no such expl i ci t di r ect i on her e.Nonet hel ess, i f t he Oct ober 12 or al schedul i ng deadl i ne had beeni ncl uded i n t he Oct ober 14 schedul i ng or der , we suspect t hat t hebankrupt cy cour t pr oper l y coul d have enf or ced that deadl i ne underRul e 7016 even i f t he cour t had not expl i ci t l y desi gnat ed Rul e7016 f or appl i cat i on i n t hi s cont est ed mat t er . See Adams v.Dor si e' s St eak House, I nc. ( I n r e Dor si e' s St eak House, I nc. ) ,130 B. R. 363, 365- 66 (D. Mass. 1991) .

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cour t empl oyed her e. The Rul es, Ci vi l Rul es and cases t he

par t i es ci t e ar e i napposi t e because t hey al l i nvol ve deadl i nes,

r equi r ement s or r est r i ct i ons wr i t t en i nt o t he r ul es t hemsel ves or

cont ai ned i n a wr i t t en or der of cour t . See, e. g. , Rul es 7016,7026 and 7037 ( i ncor por at i ng Ci vi l Rul es 16, 26 and 37) ; Pr i ce v.

Syedel , 961 F. 2d 1470, 1474 (9t h Ci r . 1992) . 14

Whi l e t he Fi r st St r eet Par t i es di d not speci f i cal l y couch

t hei r chal l enge t o t he bankr upt cy cour t ’ s evi dent i ar y r ul i ng i n

due pr ocess t er ms, t he i ssue r ai sed i s f undament al l y one of a

l ack of due pr ocess.

Due pr ocess r equi r es r easonabl e not i ce and a meani ngf ul

opport uni t y t o be hear d. See Mul l ane v. Cent . Hanover Bank &

Tr ust Co. , 339 U. S. 306, 314 ( 1950) ; see al so Mat hews v.

El dr i dge, 424 U. S. 319, 333 (1976) ( “The f undament al r equi r ement

of due pr ocess i s t he opport uni t y to be hear d at a meani ngf ul

t i me and i n a meani ngf ul manner . ”) ; Ber r y v. U. S. Tr . ( I n r e

Sust ai t a) , 438 B. R. 198, 210 ( 9t h Ci r . BAP 2010) , af f ' d, 460 Fed.Appx. 627 ( 9t h Ci r . 2011) ( “pr i or t o sanct i oni ng a par t y, t he

cour t must pr ovi de t he par t y t o be sanct i oned wi t h par t i cul ar i zed

not i ce t o compor t wi t h due pr ocess. ”) .



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15We f ur t her note t hat , i n t hei r November 17, 2011 mot i on t ocor r ect or cl ar i f y t he amended ver si on of t he Oct ober 14schedul i ng or der , t he Fi r st St r eet par t i es suggest ed t hat a br i ef extensi on of t he deadl i ne t o depose t hei r Non- Appr ai ser Exper t swoul d r emedy any pr ej udi ce t o Mi ss i on. However , t he bankr upt cycour t ’ s November 18, 2011 or der denyi ng t he Fi r st St r eet Par t i es’November 17, 2011 mot i on i ndi cat es t hat t he bankr upt cy cour t

r ef used t o consi der t he extent of pr ej udi ce t o Mi ssi on, whet hert hat pr ej udi ce coul d have been r emedi ed by a br i ef extensi on of t he di scover y deadl i ne, or whet her any sanct i on l ess t han t heexcl usi on of al l Non- Appr ai ser Exper t t est i mony woul d havesuf f i ced under t he ci r cumst ances t o enabl e t o cour t t o mai nt ai ncont r ol over i t s docket and t o ensur e t he t i mel y and f ai rr esol ut i on of Mi ssi on’ s r el i ef f r om st ay mot i on. Even i f t heOct ober 12 or al schedul i ng deadl i ne had been enf orceabl e underRul e 7016, i t woul d have been appr opr i at e f or t he bankrupt cycour t t o consi der t hese t ypes of i ssues bef or e excl udi ng al l of t he Non- Appr ai ser Exper t t est i mony. See gener al l y Pr i ce,

961 F. 2d at 1474 ( l i st i ng f act or s t he t r i al cour t must consi derbef or e excl udi ng unl i st ed wi t nesses) .

16I n or der t o rever se based on ei t her an er r oneousevi dent i ar y rul i ng or on a due pr ocess vi ol at i on, we mustconcl ude t hat t he appel l ant was pr ej udi ced. See Rosson v.Fi t zger al d ( I n r e Rosson) , 545 F. 3d 764, 776 ( 9t h Ci r . 2008) ;Har per v. Ci t y of Los Angel es, 533 F. 3d 1010, 1030 ( 9t h Ci r .2008) .

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I n l i ght of al l of t he ci r cumst ances set f or t h above, we

cannot concl ude t hat t he Fi r st St r eet Par t i es had r easonabl e or

par t i cul ar i zed not i ce of t he bankr upt cy cour t ’ s i nt ent i on t o

enf or ce t he Oct ober 12 or al schedul i ng deadl i ne as i f i t had beeni ncl uded i n t he Oct ober 14 schedul i ng order . Nor can we concl ude

t hat t he Fi r st St r eet Par t i es had a meani ngf ul oppor t uni t y to be

hear d when t he cour t excl uded al l of t hei r Non- Appr ai ser Exper t

t est i mony based on t hei r noncompl i ance wi t h t he or al schedul i ng

deadl i ne. 15

Fur t hermore, we are persuaded t hat t he bankr upt cy cour t ’ s

err or was not harml ess. 16 The pr oposed t est i mony of t he



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Non- Appr ai ser Exper t s, par t i cul ar l y Bur ke’ s exper t t est i mony,

l i kel y coul d have i nf l uenced a number of key det ermi nat i ons of

t he bankr upt cy cour t , i ncl udi ng i t s det er mi nat i ons: ( 1) t hat t he

Fi r st St r eet Par t i es had no equi t y i n t he Pr oper t i es, ( 2) t hatt he Fi r st St r eet Par t i es di d not have a r eal i st i c pr ospect f or an

ef f ect i ve r eor gani zat i on, and ( 3) t hat Mi ssi on di d not have

adequat e pr ot ect i on of i t s i nt er est i n t he Pr oper t i es.

We acknowl edge t hat Mi ss i on al so sought t o excl ude

si gni f i cant por t i ons of t he Non- Appr ai ser exper t t est i mony on

al t er nat e gr ounds, such as hear say, l ack of f oundat i on and

r el evance. However , t he bankr upt cy cour t di d not r ul e on t hese

al t er nat e gr ounds f or excl usi on, and t hi s Panel decl i nes t o do so

i n t he f i r st i nst ance on appeal . On r emand, t he bankrupt cy cour t

r emai ns f r ee t o make i t s own det er mi nat i ons on t hese al t er nat e

gr ounds f or excl usi on, and we expr ess no opi ni on on t hei r pr oper

di sposi t i on.

CONCLUSION

For al l of t he reasons set f or t h above, we VACATE the or der

gr ant i ng rel i ef f r om t he aut omat i c st ay and REMAND t hi s mat t er t o

t he bankrupt cy cour t f or f ur t her pr oceedi ngs.

Appendi x Fol l ows



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17 The r ecor d does not i ncl ude an of f i ci al t r anscr i pt of t he

Oct ober 12 Conf er ence, but i t does i ncl ude an unof f i ci alt r anscr i pt pr epar ed and of f er ed by the Fi r st St r eet Par t i es( “Oct ober 12 Tr anscr i pt ”) . Mi ssi on has not obj ect ed t o t heOct ober 12 Tr anscr i pt or chal l enged i t s accur acy, so we wi l laccept i t as a gener al l y accur at e t r anscr i pt i on of t he Oct ober 12Conf er ence. Whi l e t her e ar e appar ent omi ssi ons and i naccur aci esf r om t i me t o t i me, t he key poi nt s and t hemes are r ei t er at edseveral t i mes and t here can be no reasonabl e doubt as t o whatmat er i al l y t r anspi r ed.

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APPENDIX

NARRATIVE SUMMARY OF EVENTS LEADING TO EXCLUSION

OF THE FIRST STREET PARTIES’ NON-APPRAISER EXPERT TESTIMONY

The bankrupt cy cour t hel d a prel i mi nar y hear i ng on t her el i ef f r om st ay mot i on on Oct ober 5, 2011. At t hat prel i mi nar y

hear i ng, t he cour t set a st at us and schedul i ng conf er ence f or

Oct ober 12, 2011 ( “Oct ober 12 Conf erence”) . Thi s conf erence

pl ayed a pi vot al r ol e i n t hi s cont r over sy. 17 Dur i ng t he cour se

of t he Oct ober 12 Conf er ence, t he cour t or al l y st at ed t hat i t was

goi ng t o set t he f ol l owi ng schedul e l eadi ng up t o and i ncl udi ng

t he f i nal rel i ef f rom stay hear i ng or “tr i al . ”

October 14, 2011: Mi ssi on t o f i l e and ser ve an account i ng f or

i t s cl ai m and t hei r exper t appr ai sal r epor t ;

October 31, 2011: Bot h Par t i es t o di scl ose any non- appr ai ser

wi t nesses f or t r i al ( est i mat ed at t he t i me by

t he par t i es as one or t wo ot her wi t nesses per

si de) ; November 18, 2011: The Fi r st St r eet Par t i es t o f i l e and ser ve

t hei r exper t appr ai sal r epor t , and bot h

par t i es t o f i l e and ser ve al l ot her wi t ness

decl ar at i ons;



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November 21-25, 2011: Wi t ness deposi t i ons

November 25, 2011: Di scover y cut of f

December 1 & 2, 2011: Tr i al ( wi t h an addi t i onal day of

December 16, 2011, hel d i n r eserve)See Oct ober 12 Tr anscr i pt at pp. 7- 10.

Si gni f i cant l y, at t he t i me of t he Oct ober 12 Conf er ence, t he

cour t cl ear l y i nt ended di scl osur e of al l wi t nesses by no l at er

t han Oct ober 31, 2011. For t hei r par t , t he Fi r st St r eet Par t i es

r epr esent ed t hat , as of t he t i me of t he Oct ober 12 Conf er ence,

t hey had no i dea as yet what ot her wi t nesses besi des t hei r

appr ai ser t hey woul d cal l . They pr oposed a deadl i ne f or

di scl osi ng al l wi t nesses of one week bef or e t r i al , but t he

bankrupt cy cour t expl i ci t l y r ej ect ed t hat deadl i ne and i nst ead

or al l y st at ed t hat i t woul d set an Oct ober 31 deadl i ne:

J udge: So, Mr . Macdonal d, I know you may or may nothave an appr ai sal done but as f ar as ot her par t i es whodo you . . . do you have an i dea at t hi s poi nt who youwi l l be cal l i ng?

Macdonal d [ t he Fi r st St r eet Par t i es’ s Counsel ] : No Idon' t . Usual l y t he schedul i ng or der wi t h t he cour t s of t hi s di st r i ct wi t nesses ar e di scl osed a week bef or e.

J udge: I ' m j ust t r yi ng t o have no surpr i ses as f ar asi f t hey are goi ng t o depose Mr . Choo or Mr . Gr aham. Idi dn' t know i f t her e was anybody el se. I ' m j ust t r yi ngt o get t hi s down t o expedi t e t he di scover y pr ocess andso t here i s no surpr i ses and gi ve you as much t i me as Ican t o get an appr ai sal and so you can t ake t heappr ai ser deposi t i on. I f you ar en' t i n a posi t i on t osay, si mpl y j ust say t oday and t hen set a dat e at t hi s

poi nt .Macdonal d: No, I ' m not .

J udge: I woul d guess an ear l y dat e f or t he desi gnat i onof wi t nesses.

Macdonal d: How about Oct ober 31st ?

St r i ckon [ Mi ssi on’ s counsel ] : I ' m not sayi ng we have



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18See § 362( e) ( 1) .

19 The Fi r st St r eet Par t i es have not chal l enged t hebankrupt cy cour t ’ s i nt er pr et at i on of § 362( e) ( 1) , nor have t hey

( cont i nued. . . )

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t o desi gnat e a speci f i c appr ai ser , but whoever t hedebt or s' appr ai ser .

J udge: No, I t hi nk t hat i s mor e t han f ai r . The 31st .So Mr . Macdonal d woul d desi gnate - - both si des woul ddesi gnat e any wi t nesses - - exper t and . . . .

Macdonal d: No.

* * *

J udge: I ' m j ust goi ng t o say t hat you have unt i lOct ober 31 t o i dent i f y any wi t ness, t he wi t ness whowi l l t est i f y and i t ' s not t o gi ve a whol e l aundr y l i st ,i t ' s si mpl y who you i nt end on cal l i ng . . . .

Oct ober 12 Tr anscr i pt at p. 7.

Mor eover , t he bankrupt cy cour t r epeat edl y expr essed i t s

over ar chi ng concer ns t hat Mi ssi on was ent i t l ed by l aw18 t o an

expedi t i ous f i nal hear i ng as soon as pr act i cabl e and t hat t he

cour t needed t o nai l down as much as poss i bl e as qui ckl y as

possi bl e i n or der t o avoi d unnecessary sur pr i ses and del ay i n t he

di scover y and pr et r i al pr ocess. The f ol l owi ng st at ement i s

t ypi cal of t he cour t ’ s comment ar y:

J udge: The expect ed probl em i s t hat we ar e l ooki ng att he pr oper t y i s appr eci at i ng. I don' t know i f i t i s ori sn' t . Ther e i s not hi ng bei ng pai d as adequat epr ot ecti on t o i t s credi t or s. The si t uat i on t echni cal l yt hey' r e ent i t l ed t o have a hear i ng wi t hi n 30 days of t hei r i ni t i al pr el i mi nar y hear i ng and set f or t hcompel l i ng r eason t o t he cour t . The onl y one t hat Ihave i s basi cal l y my schedul e and t hose ar e t he i ni t i aldates t hat I have [ December 1 and 2, 2011] . That ' s t heear l i est I can get t he par t i es i nt o i t . The debt or hast o r eal i ze t hat t hey f i l ed t he bankrupt cy and t hey wer egoi ng t o be f aced wi t h a r el i ef f r om st ay mot i on t hatmay not have got t en f ormal appr ai sal s.

Oct ober 12 Tr anscr i pt at p. 5. 19



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19( . . . cont i nued)argued t hat t here were ot her compel l i ng reasons why t he cour tshoul d have del ayed t he f i nal hear i ng f r omDecember 1 & 2, 2011.

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On Oct ober 14, 2011, t he bankr upt cy cour t ent ered i t s

schedul i ng or der based on the Oct ober 12 Conf erence.

Unf ort unatel y, t he Oct ober 14 schedul i ng order cont ai ned a number

of deadl i nes t hat creat ed i nt er nal i nconsi st enci es i n t hedocument and t hat wer e i nconsi st ent wi t h what t he cour t or al l y

r ul ed at Oct ober 12 Conf erence. The most pert i nent and

pr obl emat i c paragr aphs were paragr aphs 4 and 10( b) ( i ) . The

f ol l owi ng char t summar i zes t he key di f f er ences bet ween t he

bankrupt cy cour t ’ s Oct ober 12 or al r ul i ng, par agr aph 4 of t he

Oct ober 14 schedul i ng or der and par agr aph 10( b) ( i ) of t he

Oct ober 14 schedul i ng order :

OCTOBER 12ORAL RULING

OCTOBER 14ORDER, ¶ 4

OCTOBER 14ORDER, ¶ 10(b)(i)

10/31/11

Par t i es todi scl ose al lnon- appr ai serwi t nesses, bot hexper t and non-exper t

Par t i es t odi scl ose al l non-exper t wi t nessesand t o exchangenon- exper t decl s.and exhi bi t l i sts

N/ A

11/18/11 Par t i es to f i l eand ser ve al lnon- appr ai serwi t ness decl s.

N/ A N/ A

11/29/11 N/ A N/ APar t i es to f i l eand ser ve al lwi t ness decl s. ,both exper t andnon- exper t

I n accor dance wi t h t he Oct ober 14 schedul i ng or der , t he

Fi r st St r eet Par t i es f i l ed and served on Oct ober 31, 2011, a non-

exper t wi t ness l i st nami ng t hr ee per ci pi ent wi t nesses. Mi ssi on



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20Cont r ar y t o the bankrupt cy cour t ’ s Oct ober 12 r ul i ngs,Mi ss i on advocat ed i n i t s November 7 mot i on t hat par agr aph 10 was“r i ght ” and paragr aph 4 was “wr ong. ”

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di d not f i l e anythi ng on Oct ober 31, 2011. The next t hi ng

Mi ss i on f i l ed was a mot i on, on November 7, 2011, seeki ng

cor r ect i on under Ci vi l Rul e 60( a) of “cl er i cal er r or s” i n t he

Oct ober 14 schedul i ng order . The bankr upt cy cour t ent ered anor der on November 9 onl y par t i al l y gr ant i ng Mi ssi on’ s mot i on. 20

The cour t acknowl edged t hat cor r ect i ons wer e necessar y, and

appar ent l y concl uded t hat some extensi on of t he deadl i nes wi t h

r espect t o non- expert wi t nesses was necessary i n order t o r emedy

any conf usi on caused by i nt er nal i nconsi st enci es i n t he

Oct ober 14 schedul i ng or der . Accor di ngl y, t he cour t ’ s November 9

or der ext ended t he deadl i ne i n par agr aph 4 f or both di scl osure

and decl ar at i ons of non- exper t wi t nesses f r om Oct ober 31, 2011 t o

November 15, 2011. I n addi t i on, t he November 9 order del eted

par agr aphs 10( b) and 10( c) essent i al l y f or t wo reasons:

( 1) because t hese pr ovi si ons wer e i nconsi st ent wi t h i t s

Oct ober 12 or al r ul i ng and ( 2) because the cour t was st i l l

commi t t ed t o compl et i ng t he di scover y and pr et r i al pr ocess i n anexpedi t ed f ashi on t hat woul d al l ow t r i al t o pr oceed on December 1

and 2, 2011.

The net ef f ect of t he bankr upt cy cour t ’ s November 9, 2011

amendment s t o t he Oct ober 14 schedul i ng order was t o sua sponte

omi t any and al l pr ovi si ons f or di scl osur e of non- appr ai ser

exper t wi t nesses. Appar ent l y, wi t h r espect t o non- appr ai ser

exper t s, t he bankrupt cy cour t i nt ended t o hol d t he par t i es t o t he

deadl i ne i t had st at ed i n i t s October 12 or al r ul i ng, r equi r i ng



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bot h par t i es t o di scl ose al l non- appr ai ser exper t s by Oct ober 31,

2011, even t hough no such deadl i ne had been set f or t h i n the

Oct ober 14 schedul i ng or der . The cour t appar ent l y concl uded

t hat , si nce no par t y had di scl osed any non- appr ai ser exper t s byOct ober 31, 2011, no pr ovi si on f or t hem was necessar y i n t he

amended schedul i ng order .

The Fi r st St r eet Par t i es di d not of f er any i mmedi at e

r esponse ei t her t o Mi ss i on’ s November 7, 2011 mot i on t o cl ar i f y

or t o t he bankr upt cy cour t ’ s November 9, 2011 order . Moreover ,

t he Fi r st St r eet Par t i es never di scl osed t he i dent i t i es of t hei r

Non- Appr ai ser Exper t s bef or e t hey f i l ed and served t hei r

Non- Appr ai ser Exper t decl arat i ons on November 17 and 18, 2011.

I nst ead, on November 17, 2011, t he Fi r st St r eet Par t i es

f i l ed t hei r own mot i on t o cor r ect or cl ar i f y t he amended

schedul i ng or der . Accor di ng t o t he Fi r st St r eet Par t i es, t he

amended schedul i ng order err oneousl y omi t t ed any pr ovi si on f or

Non- Appr ai ser Exper t s, and t hey r equest ed, among ot her t hi ngs, anew deadl i ne of November 18, 2011 f or f i l i ng and servi ng t hei r

Non- Appr ai ser Exper t decl ar at i ons, as wel l as a br i ef ext ensi on

of t he di scover y cut of f i n or der t o gi ve Mi ssi on an oppor t uni t y

t o depose t hei r Non- Appr ai ser Exper t s. Not abl y, t he Fi r st St r eet

Par t i es st i l l di d not di scl ose at t hi s l at e dat e t he i dent i t i es

of t hei r Non- Appr ai ser Exper t s, f or whom i t i nt ended t o f i l e and

serve decl ar at i ons t he ver y next day.

The bankrupt cy cour t enter ed an or der on November 18, 2011

denyi ng t he Fi r st St r eet Par t i es’ November 17, 2011 mot i on t o

cor r ect . The cour t based t hi s deni al on t he f ol l owi ng f act or s:

1. The Fi r st St r eet Par t i es repr esent ed t o t he cour t at t he



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21 Thi s i s a mi sst at ement of t he r ecor d. Bot h t he unof f i ci alOct ober 12 Transcr i pt and t he bankr upt cy cour t ’ s l ater comment sat t r i al r ef l ect t hat t he Fi r st St r eet Par t i es actual l yr epr esent ed on Oct ober 12 t hat t hey di d not know yet whether t heywoul d seek to cal l any non- appr ai ser exper t s.

22Mi ssi on al so ar gued t hat por t i ons of t he Non- Appr ai serExpert decl arat i on t est i mony shoul d be excl uded on hear say,r el evance and f oundat i on gr ounds. But t he bankr upt cy cour t neverr ul ed on t hese gr ounds.

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Oct ober 12, 2011 Conf erence that i t had no non- appr ai ser

exper t s t o desi gnat e as wi t nesses; 21

2. The cour t r el i ed on t he Fi r st St r eet Par t i es’ supposed

r epr esent at i on i n i ssui ng i t s Oct ober 14, 2011 schedul i ngor der ( but as not ed above, t her e was no i ndi cat i on i n t hat

order or i n t he November 9, 2011 amendment s t her et o of any

deadl i ne f or desi gnat i ng non- appr ai ser exper t s) ;

3. Dur i ng t he next mont h af t er t he i ssuance of t he Oct ober 14

schedul i ng or der , t he Fi r st St r eet Par t i es nei t her sought

amendment of t he schedul i ng order nor di scl osed t he

exi st ence or i dent i t i es of t hei r Non- Appr ai ser Exper t s.

The Fi r st St r eet Par t i es went ahead and f i l ed and ser ved one

of t hei r Non- Appr ai ser Expert decl arat i ons on November 17, 2011,

and t he rest on November 18, 2011.

Mi ss i on never deposed t he Non- Appr ai ser Exper t s. I nst ead,

on November 29, 2011, Mi ss i on f i l ed i t s mot i ons i n l i mi ne number s

5 - 8, seeki ng t o excl ude al l t est i mony of t he Non- Appr ai serExper t s on t he gr ound t hat t he submi ssi on of t hei r t est i mony

cont r avened the Oct ober 14 schedul i ng order and the November 18,

2011 or der denyi ng t he Fi r st St r eet Par t i es’ November 17, 2011

mot i on t o cor r ect . 22 The Fi r st St r eet Par t i es f i l ed an



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opposi t i on t o t he mot i ons i n l i mi ne on November 30, 2011.

Dur i ng t r i al , t he bankrupt cy cour t gr ant ed Mi ssi on’ s mot i ons

i n l i mi ne number s 5 - 8, and excl uded al l of t he Non- Appr ai ser

Exper t Test i mony. The cour t not ed t hat , st ar t i ng wi t h t hei ssuance of t he Oct ober 14 schedul i ng order and t hr ough t he

amendment of t hat order on November 9, 2011, and up to t he f i l i ng

of t he Fi r st St r eet Par t i es’ November 17 mot i on t o cor r ect , t he

Fi r st St r eet Par t i es wer e cont ent t o not di scl ose whet her t hey

woul d be of f er i ng any non- appr ai ser exper t t est i mony, even though

t he dat es on t hei r Non- Appr ai ser Exper t decl ar at i ons r ef l ect t hat

t hey knew at l east by ear l y November t hat t hey woul d be usi ng at

l east some non- appr ai ser exper t t est i mony. The cour t al so

expr essed concern t hat , even af t er t he cour t amended t he

schedul i ng order on November 9, 2011, omi t t i ng any pr ovi si on f or

non- appr ai ser exper t t est i mony, i t st i l l t ook t he Fi r st St r eet

Par t i es ei ght days t o addr ess t he i ssue by f i l i ng t hei r

November 17, 2011 mot i on t o cor r ect .

in re: first street holdings nv, llc, 9th cir. bap (2012)

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