Gens v. Wells Fargo Bank, N.A.

Filing 37

ORDER DENYING 19 DEBTOR'S MOTION FOR STAY PENDING APPEAL. Signed by Judge Beth Labson Freeman on 6/27/2017.(blflc1S, COURT STAFF) (Filed on 6/27/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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IN RE LAURA GENS,
Debtor.

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Case No. 17-cv-01001-BLF
ORDER DENYING DEBTOR’S
MOTION FOR STAY PENDING
APPEAL

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United States District Court
Northern District of California

[Re: ECF 19]
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Debtor Laura Gens appeals the bankruptcy court’s order converting her Chapter 11 case to

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a Chapter 7 case. See Notice of Appeal, ECF 1-1. After unsuccessfully moving for a stay pending

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appeal in the bankruptcy court, see Order Denying Debtor’s Motion for Stay Pending Appeal,

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ECF 20-18, Debtor filed a motion for a stay in this Court with a noticed hearing date of September

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28, 2017, see Debtor’s Motion for Stay, ECF 19. The motion is opposed by secured creditor

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Wells Fargo Bank, N.A. (“Wells Fargo”) and the Chapter 7 Trustee, who joins in Wells Fargo’s

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opposition. See Wells Fargo’s Opp., ECF 21; Trustee’s Joinder in Opp., ECF 25. Because it was

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concerned that Debtor’s home might be sold prior to the noticed hearing date, the Court sua sponte

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reset the hearing date to June 1, 2017. See Order Resetting Hearing Date, ECF 31.

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At the hearing, the Court clarified that its review of the bankruptcy court’s denial of a stay

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is limited to determining whether the bankruptcy court abused its discretion. After hearing

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argument, the Court stated its conclusion that the bankruptcy court had applied the correct legal

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standard; the bankruptcy court’s factual findings were adequately supported by the record; and the

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bankruptcy court’s denial of a stay was not an abuse of discretion. The Court stated on the record

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that it would not grant a stay and advised the parties that it was informing them of its ruling at the

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time of the hearing due to time constraints regarding a possible sale of the property and because

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the Court likely would not be able to issue a written order for several weeks. This written order is

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intended to explain more fully the Court’s reasoning for its denial of Debtor’s motion.

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I.

BACKGROUND
Debtor has filed four bankruptcy cases in the past seven years, which among other things

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has prevented Wells Fargo from foreclosing on her home. See Transcript of BR Proceedings

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1/25/2017, ECF 20-23. The bankruptcy court summarized those proceedings at a January 25,

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2017 hearing on Wells Fargo’s Motion to Dismiss Case or Convert Case to Chapter 7. See id.

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Debtor has had a long-running dispute with Wells Fargo over a loan secured by Debtor’s multi-

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United States District Court
Northern District of California

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million dollar home in Palo Alto, California. See id.
Debtor’s first bankruptcy, Case No. 10-br-55305, was filed in May 2010 and dismissed in

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June 2012 based on the bankruptcy court’s determination that Debtor could not file or confirm a

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plan. Transcript of BR Proceedings 1/25/2017 at 20, ECF 20-23. Her second bankruptcy, Case

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No. 12-br-56055, was filed in August 2012 and dismissed voluntarily in October 2012. Id. Her

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third bankruptcy, Case No. 13-br-30106, was filed in January 2013 and dismissed in May 2015

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when it was reassigned to a new bankruptcy judge with no plan confirmed. Id. Her fourth

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bankruptcy (from which the present appeal arises), Case No. 15-br-53562, was filed in November

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2015 and converted to a Chapter 7 case by order dated February 1, 2017. Id.; Order Granting

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Wells Fargo’s Motion to Dismiss or Convert Case to Chapter 7, ECF 1-1.

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The bankruptcy court concluded that cause existed under 11 U.S.C. § 1112(b) to convert or

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dismiss the case, and that conversion rather than dismissal was in the best interest of the creditors

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and the estate. See Order Granting Wells Fargo’s Motion to Dismiss or Convert Case to Chapter

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7, ECF 1-1. On the issue of cause, the bankruptcy court noted on the record that Debtor did not

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dispute that her Chapter 11 case should be resolved, but instead requested dismissal rather than

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conversion. Transcript of BR Proceedings 1/25/2017 at 20, ECF 20-23. The bankruptcy court

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took Debtor’s position as a concession that cause existed under § 1112(b). Id. at 20-21. Separate

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and apart from Debtor’s concession, the bankruptcy court concluded that cause existed based on

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Debtor’s bad faith in abusing the bankruptcy process, as evidenced by Debtor’s submission of
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fraudulent documents regarding the financial resources of her husband, Timothy Gens; Timothy

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Gens’ refusal to cooperate with Wells Fargo’s efforts to take discovery regarding his financial

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resources; Debtor’s overestimation of her own income and underestimation of her expenses; and

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Debtor’s persistence in objecting to Wells Fargo’s claim despite an order overruling that objection.

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Id. at 21-30.

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On the issue of conversion versus dismissal, the bankruptcy court concluded that

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conversion was in the best interest of the creditors, because Debtor was a serial filer and likely

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would simply file a fifth bankruptcy upon dismissal of her fourth case. Id. 31-32. The bankruptcy

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court found that conversion to Chapter 7 would result in all creditors being paid more quickly than
if Debtor continued with her efforts to confirm a Chapter 11 plan. Id. at 32. Finally, the Court

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United States District Court
Northern District of California

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found that requiring Wells Fargo to wait longer for payment would be inherently unfair given

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Debtor’s conduct to date. Id. at 33.
Debtor appealed the bankruptcy court’s order converting the Chapter 11 case to a Chapter

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7 case. She now seeks a stay of that order pending appeal.
II.

LEGAL STANDARD

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A motion for a stay pending appeal ordinarily must be brought in the bankruptcy court in

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the first instance. Fed. R. Bankr. P. 8007(a). If a party moves for such relief in the district court,

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“[t]he motion must: (A) show that moving first in the bankruptcy court would be impracticable;

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or (B) if a motion was made in the bankruptcy court, either state that the court has not yet ruled on

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the motion, or state that the court has ruled and set out any reasons given for the ruling.” Fed. R.

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Bankr. P. 8007(b)(2).

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Where the bankruptcy court has denied a motion for a stay pending appeal, the district

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court may grant a stay only if it determines that the bankruptcy court’s denial was an abuse of

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discretion. See In re Wymer, 5 B.R. 802, 808 (9th Cir. B.A.P. 1980) (“It is . . . important to the

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properly functioning bankruptcy court that the trial judge’s rulings on stays pending appeal be

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disturbed only in the event of error or abuse of discretion.”); In re North Plaza, LLC, 395 B.R.

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113, 119 (S.D. Cal. 2008) (“Where the bankruptcy court has already denied a stay . . . the

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appellate court’s review is limited to a simple determination of whether the bankruptcy court
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abused its discretion.”). “The abuse of discretion standard on review of the bankruptcy court’s

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order denying a stay encompasses a de novo review of the law and a clearly erroneous review of

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the facts with respect to the underlying issues.” In re North Plaza, 395 B.R. at 119.

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III.

DISCUSSION

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A.

Debtor Complied With Rule 8007

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Debtor complied with the presentation requirement of Rule 8007, as she moved for a stay

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in the bankruptcy court before filing her current motion in this Court. Wells Fargo nonetheless

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argues that Debtor’s motion should be denied because Debtor does not set forth the reasons for the

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bankruptcy court’s ruling as required by Rule 8007(b)(2)(B). The Court declines to dispose of
Debtor’s motion based on that technicality. Debtor has submitted both the transcript of the

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United States District Court
Northern District of California

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hearing on Debtor’s motion for a stay before the bankruptcy court as well as the bankruptcy

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court’s written ruling denying the stay. See Transcript of BR Proceedings 4/5/2017, ECF 20-19;

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Order Denying Debtor’s Motion for Stay Pending Appeal, ECF 20-18. Debtor thus has provided

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all of the information contemplated by Rule 8007.

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B.

The Bankruptcy Court Did Not Abuse Its Discretion In Denying A Stay

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As set forth above, this Court’s consideration of Debtor’s motion for a stay is limited to

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determining whether the bankruptcy court’s denial of a stay was an abuse of discretion. See In re

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Wymer, 5 B.R. at 808; In re North Plaza, 395 B.R. at 119. In making that determination, this

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Court reviews the bankruptcy court’s conclusions of law de novo and its factual findings for clear

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error. In re North Plaza, 395 B.R. at 119.

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Before turning to that review, the Court observes that Debtor’s briefing demonstrates a

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misunderstanding regarding the applicable legal standard. Debtor briefed her motion as though

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presenting a motion for a stay to this Court in the first instance. Thus all of Debtor’s arguments

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focus on asserted errors in the bankruptcy’s court’s rationale for converting her Chapter 11 case to

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a Chapter 7 case and injury flowing from those asserted errors. However, the issue presented by

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Debtor’s motion for a stay is not whether the bankruptcy court erred in converting the case, but

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whether the bankruptcy court abused its discretion in denying Debtor’s motion for a stay pending

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appeal of the conversion order. For the reasons discussed below, this Court concludes that the
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bankruptcy court did not abuse its discretion in denying a stay.
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The Bankruptcy Court Applied The Correct Legal Standards

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In order to conduct a de novo review of the bankruptcy court’s conclusions of law, this

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Court must determine the correct legal standards and then decide whether the bankruptcy court

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applied those legal standards in denying Debtor’s motion for a stay.

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The Court first addresses the standard applicable to a motion for a stay pending appeal.

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When considering such a motion, a court must consider four factors: “(1) whether the stay

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applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the

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applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will
substantially injure the other parties interested in the proceeding; and (4) where the public interest

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United States District Court
Northern District of California

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lies.” Nken v. Holder, 556 U.S. 418, 434 (2009) (internal quotation marks and citation omitted).

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The first two factors are the most critical. Id. However, “[t]he party moving for a stay has the

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burden of proof on each of these elements, and the movant’s failure to satisfy one prong of the

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standard dooms the motion.” In re Silva, No. 9:10-bk-14135-PC, 2015 WL 1259774, at *4 (C.D.

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Cal. Mar. 17, 2015); see also In re Rivera, No. 5:15-cv-04402-EJD, 2015 WL 6847973, at *2

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(N.D. Cal. Nov. 9, 2015) (“a failure on any one factor dooms the motion”) (internal quotation

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marks and citation omitted).

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“A stay is not a matter of right, even if irreparable injury might otherwise result.” Nken,

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556 U.S. at 433 (internal quotation marks and citation omitted). “It is instead an exercise of

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judicial discretion, and the propriety of its issue is dependent upon the circumstances of the

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particular case.” Id. (internal quotation marks, citation, and brackets omitted). The party seeking

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a stay bears the burden of showing that the circumstances justify a stay. Id. at 433-34.

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The bankruptcy court applied this standard expressly in evaluating Debtor’s motion for a

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stay, citing Nken on the record and reciting the four-factor test set forth therein. Transcript of BR

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Proceedings 4/5/2017 at 5, ECF 20-19. The bankruptcy court indicated that an alternative “sliding

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scale” test could be used. Id. However, the record makes clear that the bankruptcy court did not

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apply an alternative test, but rather applied the four-factor test articulated in Nken. See id. at 6-10.

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Accordingly, the Court concludes that the bankruptcy court applied the correct legal standard
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when evaluating Debtor’s motion for a stay.

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When it applied four-factor test set forth above, the bankruptcy court necessarily

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determined whether Debtor had shown a strong likelihood of success on the merits of her appeal.

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In making that determination, the bankruptcy court articulated legal principles relevant to its

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underlying decision to convert Debtor’s case from Chapter 11 to Chapter 7. Most importantly

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here, the bankruptcy court stated that bad faith can constitute cause to dismiss or convert a case

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under 11 U.S.C. § 1112(b). See Transcript of BR Proceedings 4/5/2017 at 7, ECF 20-19. Debtor

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challenged that legal conclusion before the bankruptcy court and does so again before this Court,

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arguing that bad faith is not an adequate ground for dismissal or conversion under § 1112(b).
Having conducted a de novo review of the relevant legal authorities, the Court concludes that bad

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United States District Court
Northern District of California

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faith can constitute cause under § 1112(b). See In re Marsch, 36 F.3d 825, 828 (9th Cir. 1994)

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(“Although section 1112(b) does not explicitly require that cases be filed in ‘good faith,’ courts

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have overwhelmingly held that a lack of good faith in filing a Chapter 11 petition establishes

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cause for dismissal.”).

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2.

The Bankruptcy Court’s Factual Findings are not Clearly Erroneous

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Having determined that the bankruptcy court applied the correct legal standards, the Court

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next must determine whether the bankruptcy court’s factual findings were clearly erroneous. The

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bankruptcy court made a number of factual findings which underpinned its denial of a stay, all of

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which find support in the record. First, the bankruptcy court determined that Debtor could not

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show a likelihood of success on the merits of her appeal of the order converting her case to

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Chapter 7 because Debtor had conceded the existence of cause under § 1112(b). See Transcript of

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BR Proceedings 4/5/2017 at 6, ECF 20-19. The factual determination that Debtor conceded cause

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is supported by the following statement which Debtor submitted to the bankruptcy court: “Debtor

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respectfully requests that the motion to convert be denied but that the case be dismissed . . . .”

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Opposition to Wells Fargo Bank’s Motion to Dismiss or Convert, Tab 31 at ECF 23. Separate and

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apart from Debtor’s concession, the bankruptcy court found cause based on Debtor’s bad faith

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abuse of the bankruptcy process. See Transcript of BR Proceedings 4/5/2017 at 7, ECF 20-19.

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The factual determination that Debtor acted in bad faith is supported by evidence, summarized by
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the bankruptcy court, that Debtor submitted fraudulent documents regarding the financial

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resources of her husband, Timothy Gens; Timothy Gens refused to cooperate with Wells Fargo’s

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efforts to take discovery regarding his financial resources; Debtor overestimated her own income

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and underestimated her expenses; and Debtor persisted in objecting to Wells Fargo’s claim despite

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an order overruling that objection. Id. at 21-30.
Based on the record before it, the Court concludes that the bankruptcy court’s factual

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findings that Debtor both conceded cause and acted in bad faith are not clearly erroneous. Those

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factual findings support the bankruptcy court’s determination that Debtor failed to show a

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likelihood of success on the merits. Failure to satisfy even one factor of the four-factor test dooms

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a motion for a stay. See In re Silva, 2015 WL 1259774, at *4; In re Rivera, 2015 WL 6847973, at

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United States District Court
Northern District of California

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*2. Accordingly, the Court need not reach the other factors to conclude that the bankruptcy court

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did not abuse its discretion in denying Debtor’s motion for a stay pending appeal.
It is apparent that Debtor is desperate to prevent the sale of her home, and to that end she

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has included numerous and wide-ranging arguments in her current motion for a stay. However, as

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discussed above, under the applicable legal standards this Court’s focus is quite narrow. The

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Court therefore does not address Debtor’s arguments which go beyond the limited scope of this

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Court’s review.

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IV.

ORDER
Debtor’s motion for a stay pending appeal is DENIED.

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Dated: June 27, 2017
______________________________________
BETH LABSON FREEMAN
United States District Judge

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