In Re: Douglas Joseph Heitmeier Debtor-In-Possession
Filing
25
ORDER & REASONS denying as moot 5 Motion to Dismiss Case and denying 6 Motion to Strike, and the bankruptcy courts judgment is AFFIRMED. Signed by Judge Martin L.C. Feldman on 4/16/2014. (caa)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
IN RE:
DOUGLAS JOSEPH HEITMEIER,
CIVIL ACTION
DEBTOR-IN-POSSESSION
NO. 13-6787
SECTION “F”
ORDER AND REASONS
Before the Court are Douglas Heitmeier's appeal from the
United States Bankruptcy Court’s order lifting the automatic stay
and Whitney Bank's motions to dismiss the appeal and to strike
portions of Heitmeier's designation of items to be included on
appeal.
dismiss
For the reasons that follow, Whitney Bank's motion to
is
DENIED,
its
motion
to
strike
is
DENIED,
and
the
bankruptcy court’s judgment is AFFIRMED.
Background
Douglas Heitmeier filed for bankruptcy under Chapter 11 on May
13, 2013.
land
Whitney Bank is a creditor, secured by two parcels of
located
Mississippi.
relief
from
at
201
and
202
County
Farm
Road,
Lumberton,
On July 10, 2013, Whitney Bank filed a motion for
the
automatic
stay.
On
October
18,
2013,
the
bankruptcy court granted the motion, finding that Heitmeier has no
equity in the properties and that they are not needed for an
effective reorganization.
Heitmeier now appeals to this Court.
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Whitney Bank moves to
dismiss the appeal and to strike certain portions of Heitmeier's
designation of items to be included on appeal.
I. Motion to Dismiss
Federal Rule of Bankruptcy Procedure 8006 provides that, if
the appellant's designation of items to be included on appeal
includes any proceedings before the bankruptcy court, the appellant
must immediately order a transcript. Whitney Bank moves to dismiss
the
appeal
based
on
Heitmeier's
failure
to
timely
order
a
transcript of the bankruptcy court's hearing on the motion to lift
the
automatic
transcript,
stay.
this
Whitney
Court
cannot
Bank
argues
properly
that
consider
without
the
the
appeal.
Although Heitmeier admits to causing delay, he did order the
transcript and it is now in the record.
Accordingly, Whitney
Bank's motion is moot.
II.
Motion to Strike
Rule 8006 also provides that an appellant shall file with the
clerk and serve on the appellee a designation of items to be
included in the record on appeal. The designation of items "should
contain all documents necessary to afford a full understanding of
the case."
In re Neshaminy Office Bldg. Assocs., 62 B.R. 798, 802
(Bankr. E.D. Penn. 1986). "In particular, the appellate record
should
contain
proceedings
all
below
documents
and
and
considered
by
evidence
the
bearing
Bankruptcy
on
the
Judge
in
reaching his decision." Id. (internal quotation marks and citation
-2-
omitted). "Items not before the Bankruptcy Court and not considered
by it in rendering its decision may not be included in the record."
Id.
Whitney
Bank
contends
that
various
items
designated
by
Heitmeier to be included in the record on appeal should be excluded
because they were not considered by the bankruptcy court.
argues
that
these
items
were
never
entered
into
Whitney
evidence.
Heitmeier responds that all of the items at issue were part of the
official bankruptcy court record.
The Court is persuaded that the
challenged items may properly be included in the record on appeal.
The items were of record and available for consideration by the
bankruptcy court when it rendered its decision.
Despite Whitney
Bank's contention to the contrary, there is no requirement that an
item
be
formally
entered
into
evidence
considered by the bankruptcy court.
III.
A.
A
district
court
for
it
to
have
been
court
when
Id.
The Appeal
Standard of Review
functions
as
an
appellate
reviewing a bankruptcy court’s decision. In re Matter of Webb, 954
F.2d 1102 (5th Cir. 1992).
The standard of review depends on
whether a finding of fact or conclusion of law is being reviewed.
When findings of fact are reviewed, the clearly erroneous standard
applies. United States v. United States Gypsum Co., 333 U.S. 364,
395 (1948). However, if the findings of fact are premised on an
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improper legal standard, then that standard is not protected by the
clearly erroneous standard and it is reviewed de novo.
Matter of
Missionary Baptist Foundation of America, 818 F.2d 1135 (5th Cir.
1987).
B.
Law and Analysis
Reviewing the bankruptcy court's findings of fact for clear
error and its legal conclusions de novo, the Court upholds the
bankruptcy court’s ruling.
1.
The Extent of Whitney Bank's Security Interest
Heitmeier first contends that the bankruptcy court erred in
determining the extent of Whitney Bank's security interest.
The
bankruptcy
his
court
determined
that
Heitmeier
encumbered
properties at 201 and 202 County Farm Road with two deeds of trust,
one dated 2006 and the other 2008. The bankruptcy court found that
the 2006 deed encumbered 202 County Farm Road and that the 2008
deed encumbered both the 201 and 202 parcels. The bankruptcy judge
reasoned that the 2006 deed explicitly references 202 County Farm
Road as collateral both by street address and metes and bounds
description, and that the 2008 Deed reasonably identifies both 201
and 202 County Farm Road as collateral because it contains the
street address for 202 (but the metes and bounds description for
201).
Under Louisiana law, a promissory note does not have to
include
a
description
of
the
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security
collateralizing
its
performance; instead, the security agreement or mortgage controls
and identifies the debt it secures.
La. Civ. Code art. 3298.
A
Mississippi deed of trust secures an underlying obligation by the
grantor
to
the
lender.1
59
C.J.S.
Mortgages
§
15.
Under
Mississippi law, a deed of trust must contain a description
sufficient to "reasonably identify" the collateral described.
Miss. Code Ann. § 75-9-108.
A description reasonably identifies
the collateral if it puts "a reasonably diligent person on notice
that there may be a security interest in the collateral." O&G
Leasing, LLC, 456 B.R. 652, 662 (Bankr. S.D. Miss. 2011).
The
description need only "raise a red flag to third parties that more
investigation may be necessary" in order to give rise to the
security interest.
Id. at 664.
Heitmeier argues that none of the promissory notes evidencing
his debt identify the 2006 deed of trust as collateral.
This
argument misses the mark, however, because the bankruptcy court
correctly concluded that the 2006 and 2008 deeds of trust--not the
promissory notes–-define the security interest.
Heitmeier also
asserts that the 2008 deed does not properly identify 202 County
Farm Road as collateral.
The Court disagrees.
The bankruptcy
court properly found that the street address for 202 County Farm
Road and the metes and bounds description of 201 were sufficient to
1
Various promissory notes executed by Heitmeier provide that
Louisiana law applies, but the deeds of trust provide that
Mississippi law applies.
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"raise a red flag to third parties" that both of the properties
could be subject to the security interest.
2.
Id.
The Cross-Collateralization Clauses
Heitmeier next contends that the bankruptcy court erred in
enforcing cross-collateralization clauses contained in the 2006 and
2008 deeds of trust.
The bankruptcy court determined that the
cross-collateralization
clauses
allow
the
various debts not specifically identified.
found
that
obligations
the
deeds
and
that
specifically
the
deeds
to
encompass
The bankruptcy court
identified
all
then-known
cross-collateralization
clauses
encompassed any future obligations.
Under Mississippi law, a properly executed and unambiguous
cross collateralization clause in a deed of trust is valid and
enforceable according to its terms.
726 (Miss. 1992).
Kelso v. McGowan, 604 So. 2d
A cross collateralization clause may cover
subsequent loans made to the grantor.
299 So. 2d 215, 217 (Miss. 1974).
Newton Cnty. Bank v. Jones,
"If the document is clear and
unambiguous as to the collateral securing other debts, we have
found intent to secure these debts."
Merchants National Bank v.
Stewart, 608 So. 2d 1120, 1126 (Miss. 1992).
Again, Heitmeier identifies no error in the bankruptcy court's
determination.
The cross collateralization clauses clearly and
unambiguously provide that the deeds secure "all obligations, debts
and liabilities . . .
of Grantor to Lendor . . . whether now
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existing or hereafter arising."
The bankruptcy court correctly
determined that the cross collateralization clauses are valid and
enforceable and that the deeds secure all of the indebtedness.
3.
Whether the Properties are Necessary for an Effective
Reorganization
Heitmeier also contends that the bankruptcy court erred in
determining that 201 and 202 County Farm Road are not necessary for
an effective reorganization.
The bankruptcy court granted Whitney
Bank's motion to lift the automatic stay after it determined that
Heitmeier failed to establish a reasonable probability of an
effective reorganization and that the properties are necessary to
the reorganizational effort.
A bankruptcy court may lift the automatic stay if the debtor
does not have equity in the property and the property is not
necessary to an effective reorganization. 11 U.S.C. § 362(d)(2).
The debtor bears the burden of proof on this showing, and in order
to
prove
that
the
property
is
necessary
to
an
effective
reorganization, the debtor must show first that there will be an
effective
reorganization
and
then
also
that
necessary to accomplish the reorganization.
the
property
is
United Sav. Ass'n of
Tex. v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 375-76
(1988).
the
To show that there will be an effective reorganization,
debtor
must
demonstrate
"a
reasonable
possibility
successful reorganization within a reasonable time."
-7-
of
a
Id. at 376.
Heitmeier
properties.
does
not
contend
that
he
has
equity
in
the
Nor does he contend that there is a reasonable
possibility of a successful and timely reorganization.
Indeed,
this case has just recently been converted from Chapter 11 to
Chapter 7 at Heitmeier's request.2 Nonetheless, Heitmeier insists
that the bankruptcy court erred in lifting the automatic stay
because it incorrectly found that 201 and 202 County Farm Road are
residential and not income producing.
Heitmeier argues that his
appraiser testified that the highest and best use of the properties
is pastureland, and that he once owned cows and kept them on the
properties.
Yet again Heitmeier shows no error in the bankruptcy court's
findings.
Any opinion or speculation that the properties could
theoretically produce income is plainly insufficient to satisfy
Heitmeier's burden of proving that the properties are necessary to
an effective reorganization.
Accordingly, Whitney Bank's motion to dismiss is DENIED as
moot, its motion to strike is DENIED, and the judgment is AFFIRMED.
New Orleans, Louisiana, April 16, 2014
_______________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE
2
Although his position strains logic, Heitmeier maintains that
the conversion does not moot this appeal.
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