Pinnacle Restaurant at Big Sky et al v. CH SP Acquisitions et al

Filing 29

MEMORANDUM AND ORDER. Judge Kirscher's Order and Memorandum of Decision of 3/10/14 are AFFIRMED. Signed by Judge Sam E Haddon on 6/16/2015. (ELL, )

FILED
JUN 16 2015
Clerk, U.S. District Court
District Of Montana
Helena

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BUTTE DIVISION
In re:
Bankruptcy Case No. 12-60041
SPANISH PEAKS HOLDINGS II,
LLC,
Debtor.

PINNACLE RESTAURANT AT BIG
SKY, LLC; MONTANA OPTICOM,
LLC,
Appellants,

No. CV-14-40-BU-SEH

MEMORANDUM AND
ORDER

vs
CH SP ACQUISITIONS, LLC; ROSS
P. RICHARDSON, Ch. 7 Trustee,
Appellees.

BACKGROUND
On November 30, 2006, Citigroup Global Markets Realty Corp. ("Citi")
loaned Spanish Peaks Holding II, LLC's ("SPH II") predecessor, Spanish Peak

Holdings, LLC ("SPH"), $130,000,000 secured by a mortgage on real property in
Madison and Gallatin Counties, Montana. The mortgage was recorded that same
day. The mortgage was later amended and was eventually assigned to CH SP
Acquisitions, LLC ("CHSP") on April 19, 2013.
Spanish Peaks Development, LLC ("SPD") and SPH entered into a lease
("2007 Restaurant Lease") for property subject to the mortgage in Madison
County, Montana ("the Restaurant Property") on December 14, 2007. On
December 12, 2008, SPD assigned the 2007 Restaurant Lease to Pinnacle
Restaurant at Big Sky, LLC ("Pinnacle"). An abstract of the 2007 Restaurant
Lease giving notice was recorded in Madison County on December 30, 2008. On
January 1, 2009, SPH leased other real property subject to the mortgage to
Montana Opticom, LLC ("the Telecommunication Property"). The
Telecommunication Property Lease was not recorded.
SPH II, Spanish Peaks Lodge, LLC, and the Club at Spanish Peaks, LLC
(collectively, the "Debtors"), commenced Chapter 7 proceedings in Delaware.
The cases were transferred to Montana in January 2012. Ross P. Richardson was
appointed as Chapter 7 Trustee ("Trustee").
In June 2013, Trustee sold the property subject to the original mortgage and
the lessee leases to CHSP to satisfy Debtors' debts. CHSP later asked the
2

Bankruptcy Court to determine that the sale to CHSP was free and clear of the
2007 and 2009 leases. The Bankruptcy Court so ruled on March 10, 2014. This
appeal followed.
JURISDICTION

This Court has appellate jurisdiction to review final orders of the
Bankruptcy Court under 28 U.S.C. § 158(a).
STANDARD OF REVIEW

The Bankruptcy Court's findings of fact are reviewed for clear error. 1 Its
conclusions of law are reviewed de novo. 2 Mixed questions of law and fact are
reviewed de novo. 3
ISSUE PRESENTED

Numerous arguments in favor of and in opposition to the parties' respective
positions in this appeal were advanced both in the briefs and during an extended
hearing on the merits held June 9, 2015. Nevertheless, resolution of a single issue
is dispositive:
Did the Bankruptcy Court err in holding that the sale of debtors' real

1

See In re Pomona Valley Medical Group, Inc., 476 F.3d 665, 670 (9th Cir. 2007).

2

See In re Rains, 428 F.3d 893, 900 (9th Cir. 2005).

3

See Hernandez v. Pizante, 186 B.R. 484, 488 (9th Cir. B.A.P. 1995).
3

property in satisfaction of a 2006 mortgage was free and clear of liens grounded in
the subordinate leases executed in 2007 and 2009? The answer is "no."
DISCUSSION
11 U.S.C. § 363(f)(l) permits a bankruptcy trustee to sell property "free and
clear of any interest in [that] property ... if ... applicable nonbankruptcy law
permits the sale of the property free and clear of such interest. " 4 Under Montana
law, foreclosure of a senior mortgage terminates notified junior interest holders. 5
Foreclosure of the senior mortgage and sale of the property in satisfaction of the
secured debt terminated lien interests of the junior lease holders and extinguished
such interests. The letter and spirit of the requirements of 11 U.S.C. § 363(f)(l)
were met.
CONCLUSION
The Bankruptcy Court did not err. The 2007 Restaurant Lease and the 2009
Opticom Lease were subordinate to the foreclosed mortgage. The leases were
extinguished when the property was sold to CHSP.

4

11 U.S.C. § 363(±)(1).

5

See Ruby Valley Nat'! Bank v. Wells Fargo Delaware Trust Co., 317 P.3d 174, 178
(Mont. 2014); see also Mont. Code Ann.§ 70-21-302 (Every conveyance ofreal property
properly recorded is constructive notice to subsequent purchasers and mortgagees).
4

ORDER

Judge Kirscher's Order and Memorandum of Decision of March 10, 2014,
are AFFIRMED. 6
DATED this

~y ofJune, 2015.
~HADDON
United States District Judge

6

See In re Spansih Peaks Holdings IL LLC, Banla. Case No. 12-60041, Docs. 856 and

857.
5