United States District Court, D. Nevada
In re R&S ST. ROSE, LLC, Debtor,
R & S ST. ROSE LENDERS, LLC; R & S ST. ROSE, LLC; R & S INVESTMENT GROUP, LLC; COMMONWEALTH LAND TITLE INSURANCE COMPANY; THE CREDITOR GROUP; and THE U.S. TRUSTEE, Appellees. BRANCH BANKING AND TRUST COMPANY, Appellant,
MIRANDA M. DU CHIEF UNITED STATES DISTRICT JUDGE
Banking and Trust Company, as successor in interest to the
Federal Deposit Insurance Corporation (FDIC) as receiver for
Colonial Bank N.A. (“BB&T”), appeals the
Bankruptcy Court's confirmation of R&S St. Rose
Lenders' (“Lenders”) Third Amended Chapter 11
Plan of Liquidation (“Plan”) in Lenders'
Chapter 11 bankruptcy proceedings. BB&T's argument
here is essentially that Lenders' confirmed Plan does not
meet the “good faith” standard of the Bankruptcy
Code because it rewards (or constitutes) a “Ponzi
scheme” and achieves a result that is fundamentally
unfair and inconsistent with the objectives and purposes of
the Bankruptcy Code. (ECF No. 14.) Having considered the
parties' arguments and the record, this Court will affirm
the confirmation of Lenders' Plan.
underlying facts of this case largely overlap with the facts
in the Chapter 11 bankruptcy case filed by R&S St. Rose,
LLC (“Rose”) (bankruptcy No. 11-14974-MKN)
(“Rose Bankruptcy Case”). The overlapping factual
details may be found on the Court's docket at ECF No. 108
in No. 2:17-cv-1251-MMD.
April 28, 2017, the Bankruptcy Court entered its Order on
Confirmation of Debtor's Third Amended Plan of
Liquidation (“Plan Confirmation Order”) wherein
it confirmed Lenders' Plan. (ECF No. 15 at 7-8.) In that
order, the Bankruptcy Court directed that $6, 359, 052 be
held back from distribution to Class 1 to protect
BB&T's estimated pro rata distribution in the event
BB&T's claim, then on appeal,  is ultimately
allowed. (Id.; id. at 22 n.24.)
appeal is timely, and the Court has jurisdiction under 28
U.S.C. § 158(a)(1).
Court reviews “the bankruptcy court's conclusions
of law de novo and its findings of fact for clear
error.” In re Bonham, 229 F.3d 750, 762 (9th
Cir. 2000). The bankruptcy court's factual findings are
clearly erroneous only if the findings “leave the
definite and firm conviction” that the bankruptcy court
made a mistake. In re Rains, 428 F.3d 893, 900 (9th
Cir. 2005). “A bankruptcy court abuses its discretion
if it applies the law incorrectly or if it rests its decision
on a clearly erroneous finding of a material fact.”
In re Brotby, 303 B.R. 177, 184 (B.A.P. 9th Cir.
2003); see also In re Plyam, 530 B.R. 456, 461
(B.A.P. 9th Cir. 2015) (“A bankruptcy court abuses its
discretion if it applies the wrong legal standard, misapplies
the correct legal standard, or if its factual findings are
illogical, implausible, or without support in inferences that
may be drawn from the facts in the record.”).
Court may affirm the bankruptcy court's decision
“on any ground fairly supported by the record.”
In re Warren, 568 F.3d 1113, 1116 (9th Cir. 2009).
In addition, the Court need not address arguments not raised
in the trial court but “may do so to (1) prevent a
miscarriage of justice or to preserve the integrity of the
judicial process, (2) when a change of law during the
pendency of the appeal raises a new issue, or (3) when the
issue is purely one of law.” In re Lakhany,
538 B.R. 555, 560 (B.A.P. 9th Cir. 2015).
contends that Lenders' confirmed Plan is lacking in good
faith under 11 U.S.C. § 1129(a)(3) because (1) it
endorses a Ponzi scheme and the Bankruptcy Court erred in
finding otherwise and (2) its distribution scheme is unfair
to BB&T. (ECF No. 14.) The Court first explains the
framework for its good faith analysis and then address each
of BB&T's arguments in turn.
1129(a)(3) requires that the plan be proposed “in good
faith and not by any means forbidden by law.” By its
definition, good faith means honesty in belief or purpose,
faithfulness to one's duty or obligation, observance of
reasonable commercial standards of fair dealing, and the
absence of intent to defraud or to seek unconscionable
advantage. Black's Law Dictionary (10th ed. 2009). As a
general rule, a Chapter 11 plan is proposed in good faith
where it achieves “a result consistent with the
objectives and purposes” of the Bankruptcy Code and
exhibits “fundamental fairness” in dealing with
creditors. Marshall v. Marshall (In re Marshall),
721 F.3d 1032, 1046 (9th Cir. 2013); Jorgensen v. Fed.
Land Bank of Spokane (In re Jorgensen), 66 B.R. 104,
108-09 (9th Cir. BAP 1986). In making a good faith
determination a court considers the totality of the
circumstances surrounding the plan. In re Stolrow's
Inc., 84 B.R. 167, 172 (B.A.P. 9th Cir. 1988). A finding
of good faith “will not be overturned unless the
opponent of the plan can show that the finding was clearly
erroneous.” Id. (citations omitted).
Whether Lenders' Plan of Liquidation ...