KSB

Judge Karlin

BAP CO-11-040 In Re Castro - Document Text

FILED

U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
February 27, 2012
Blaine F. Bates

NOT FOR PUBLICATION

Clerk
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT

IN RE GEORGE ARMANDO
CASTRO, formerly doing business asBoxing To The Bone, formerly doingbusiness as Castro By Design RealEstate & Inv, also known as GeorgeCastro Soria, and MARIACONCEPCION CASTRO, also knownas Maria C. Cabral,

Debtors.

GEORGE ARMANDO CASTRO,
MARIA CONCEPCION CASTRO, andSHERRON L. LEWIS, JR.,

Appellants,

v.
KONDAUR CAPITAL
CORPORATION,
Appellee.

BAP No. CO-11-040

Bankr. No. 11-24287
Chapter 7

OPINION*

Appeal from the United States Bankruptcy Courtfor the District of Colorado

Before THURMAN, Chief Judge, CORNISH, and KARLIN, Bankruptcy Judges.

KARLIN, Bankruptcy Judge.

The parties did not request oral argument, and after examining the briefs
and appellate record, the Court has determined unanimously that oral argument

* This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, andissue preclusion. 10th Cir. BAP L.R. 8018-6.

would not materially assist in the determination of this appeal. 1 The case is
therefore ordered submitted without oral argument.

This appeal is from a bankruptcy court order granting a motion by Kondaur
Capital Corp. (“Kondaur”) for relief from stay, pursuant to 11 U.S.C. § 362(d),2
and allowing it to continue to litigate a foreclosure action in state court
concerning real property (the “Property”) partially owned by debtor George
Castro. The Debtors, George and Maria Castro, along with Sherron Lewis, who
also claims to have an ownership interest in the Property, jointly appealed.
Appellants contend that Kondaur holds no interest in the Property and, therefore,
had no standing to request relief. Appellants further claim that Lewis’ interest in
the Property is superior to any claim that Kondaur might assert, and that the
Bankruptcy Court denied Lewis due process in connection with the motion
hearing. We affirm the order lifting the stay because there is no record before
this Court that demonstrates the Bankruptcy Court abused its discretion in
granting stay relief.

I. BACKGROUND
The Court gleans the following from the record submitted on appeal, such
as it is. In September 2006, Luis Castro (who is not a party to this appeal)
obtained a loan from National City Bank (“National”) to build a home on the
Property. George Castro, by power of attorney given to him by Luis Castro,
executed a Promissory Note and a Deed of Trust from Luis Castro to National.
Although the Trust Deed was recorded shortly thereafter, it contained two errors:
1) the Property street number was listed as 13866 although the correct street
number was 13836; and 2) George Castro had signed both documents on behalf of

1 Fed. R. Bankr. P. 8012.

2 Unless otherwise specified, all further statutory references in this decision
will be to the Bankruptcy Code, which is Title 11 of the United States Code.

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Luis Castro but had failed to also sign the Trust Deed on his own behalf, as a
co-owner of the Property. In November 2008, National assigned its interest in the
Note and Trust Deed to Kondaur.

In December 2010, after a state court hearing where George Castro testified
that both errors in the Trust Deed were the result of mutual mistake, the deed was
reformed, back to the date of its signing in September 2006, to correct the errors.
Also at that hearing, the state court took judicial notice of a decision by another
state court issued in August 2010, requiring Lewis to reconvey any and all of his
interest in the Property to George and Luis Castro. 3 Based on the August 2010
order, the state court held that Lewis’ interest in the Property, if any, was
subordinate to Kondaur’s.

No payments were ever made on the Note. In February 2011, Kondaur
filed a state court foreclosure action against the Property. One week prior to the
Property’s scheduled foreclosure date, debtors George and Maria Castro filed
their petition for Chapter 7 relief in the Bankruptcy Court. Shortly thereafter,
Kondaur filed a motion for relief from stay, pursuant to § 362(d). Kondaur’s
motion was based entirely on George Castro’s ownership interest in the Property,
and specified that neither of the debtors was indebted to Kondaur pursuant to the
defaulted loan to Luis Castro. In its motion, Kondaur relied on the value of the
Property stated by the Castros in their own sworn bankruptcy schedules—

For the resolution of this appeal we need not determine the method Lewis
used to purportedly acquire an interest in the Property. We do note, however, thatAppellants included in the record on appeal a copy of two State of ColoradoDistrict Court orders, one a preliminary injunction dated August 16, 2010, and theother a permanent injunction dated January 3, 2011. The second order entered
judgment against Lewis in the amount of $181,266 for violation of certainColorado consumer protection statutes, and enjoined him from providing services,
advice, consultation, etc. with regard to legal proceedings, including foreclosurenotices or proceedings. The preliminary injunction also ordered Lewis toimmediately release any interest he had acquired in the Property and to repay LuisCastro $24,000, suggesting Luis Castro may have paid Lewis and given Lewissome interest in the Property in exchange for Lewis assisting in resisting aforeclosure of the Property. See Appellee’s Appendix at 91-102.

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$639,000—but stated that the amount of its lien on the Property was well in
excess of the Property’s value, at more than $1.15 million. The Castros and
Lewis filed essentially identical pro se objections to Kondaur’s motion, asserting
that: 1) Kondaur had no standing to file the motion; 2) the Trust Deed did not
encumber the Property because of the errors the state court had already corrected
several months earlier; and 3) there were issues relating to Lewis’ interest in the
Property that needed to be resolved.

According to the Bankruptcy Court’s Order Granting Relief from Stay,
Kondaur, through its counsel, and Lewis, pro se, appeared at the hearing on the
motion for relief. Although George and Maria Castro had filed a pro se written
opposition to the motion several days before the hearing, they did not appear to
oppose the motion, as required by Local Rule. The Bankruptcy Court’s Order
notes that it determined that Lewis was without standing to oppose the motion,
and Lewis then left the hearing and did not further participate. The Bankruptcy
Court’s Order further notes that at the hearing Kondaur offered documentary
exhibits and made offers of proof, but neither the admitted exhibits nor the
transcript of the hearing have been provided to this Court as part of the record on
appeal. Based on the evidence received, the Bankruptcy Court held that Kondaur
was entitled to relief from the automatic stay. Both George and Maria Castro and
Lewis appealed.

II. JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction to hear timely filed appeals from “final
judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit
unless one of the parties elects to have the district court hear the appeal. 4 In this
case, the appellants timely filed a notice of appeal from the bankruptcy court’s

28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir.
BAP L.R. 8001-3.

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order granting relief from stay, which is a final order for purposes of appeal.5
Neither party has elected to have the district court hear this appeal, and this Court
therefore has appellate jurisdiction. The standard of review applicable to an order
granting relief from the automatic stay is abuse of discretion. 6 Under the abuse of
discretion standard, “a trial court’s decision will not be disturbed unless the
appellate court has a definite and firm conviction that the lower court made a
clear error of judgment or exceeded the bounds of permissible choice in the

circumstances.”7

III. DISCUSSION
As appellants, the Debtors and Lewis have the burden of “providing the
appellate court with an adequate record for review.” 8 Pursuant to both the Federal
Rules of Bankruptcy Procedure and the Local Rules of this Court, the record on
appeal must include all transcripts necessary for this Court’s review. 9 The
Federal Rules of Appellate Procedure require the same. 10 Without a transcript,
“this Court cannot conduct a meaningful review” of the Bankruptcy Court’s
findings and conclusions on the motion for relief and may summarily affirm the
Bankruptcy Court’s decision.11

5 Eddleman v. U. S. Dep’t of Labor, 923 F.2d 782, 784 (10th Cir. 1991)
(orders granting or denying relief from stay are final for purposes of appeal),
overruled in part on other grounds, Temex Energy, Inc. v. Underwood, Wilson,
Berry, Stein & Johnson, 968 F.2d 1003 (10th Cir. 1992).

6 Pursifull v. Eakin, 814 F.2d 1501, 1504 (10th Cir. 1987).

7 In re Busch, 294 B.R. 137, 140 (10th Cir. BAP 2003) (internal quotation
marks omitted).

8 In re Rambo, 209 B.R. 527, 530 (10th Cir. BAP), aff’d, 132 F.3d 43 (10th
Cir. 1997).

9 Fed. R. Bankr. P. 8009(b)(9); 10th Cir. BAP L.R. 8009-3(f).

10 Fed. R. App. P. 10(b)(2).

11 In re Kleinhans, CO-09-028, 2010 WL 1050583, at *3 (10th Cir. BAP Mar.
(continued...)

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Kondaur sought stay relief pursuant to § 362(d), which allows a “party in
interest” to request relief from stay either: (1) for cause, including the lack of
adequate protection of its interest in the property, or (2) on the basis that there is
no equity in the property and the property is not necessary for an effective
reorganization. The Bankruptcy Court’s order states that Kondaur established a
right to relief under both the “for cause” provision, § 362(d)(1), and the lack of
equity/necessity for reorganization provision, § 362(d)(2), and granted the
requested stay relief.

In this appeal, Debtors and Lewis challenge the Bankruptcy Court’s finding
that Kondaur is a “party in interest.” They broadly contend that Kondaur lacked
standing to obtain the requested relief based on their assertion that Kondaur holds
no interest in the Property. The Tenth Circuit Court of Appeals has recently
addressed the issue of standing under § 362(d), noting that the term “party in
interest” is not defined by the Bankruptcy Code. 12 Following the lead of other
courts, the court determined that, in order to be a party in interest with standing to
seek relief under § 362(d), one must be either a debtor or a creditor of the
bankruptcy estate. 13 To determine whether a party seeking relief from stay is a
creditor, the Court turned to § 101(10)(A), which defines a “creditor” as an
“entity that has a claim against the debtor.” In addition, § 102(2) provides that
the term “‘claim against the debtor’ includes [a] claim against property of the
debtor.”14

(...continued)
23, 2010) (citing Burnett v. Sw. Bell Tel., L.P., 555 F.3d 906, 908 (10th Cir.
2009) and Lopez v. Long (In re Long), 255 B.R. 241, 245 (10th Cir. BAP 2000)).

“claim . . . may consist of nothing more than an obligation enforceable against the

12 In re Miller, 666 F.3d 1255, 1261 (10th Cir. 2012).
13 Id.
14 See also Johnson v. Home State Bank, 501 U.S. 78, 85 (1991) (a

(continued...)

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In this case, Kondaur claims that it has an interest in the property partially
owned by one of the Debtors, George Castro. In its brief, Kondaur argues that
this claim is proven by the evidence it presented at the hearing, which it says
showed that it held both the Note and Trust Deed that were assigned to it in
November 2008. Appellants, however, did not provide this Court with a
transcript of the hearing on Kondaur’s motion, or with the documents that were
admitted into evidence by the Bankruptcy Court for its consideration at that
hearing. In its minute entry entered on the date of the hearing, which is included
in the record, the Bankruptcy Court stated that it had made oral findings and
conclusions on the record at the hearing. In its written order, the Bankruptcy
Court simply noted that the appellants’ objections to the Kondaur motion had
been “overruled.” The Bankruptcy Court conducted a hearing on this issue, but
only the outcome, not the findings made at that hearing, are in the record. As
noted above, it is appellants’ burden to provide an adequate record for this
Court’s consideration. Appellants herein have not carried this burden. Based on
this failing, the Bankruptcy Court’s order lifting stay is affirmed.

Appellants also argue that Lewis had standing to oppose Kondaur’s motion
for relief from stay, and was denied due process at the motion hearing. From the
very limited record before us, it appears that the Bankruptcy Court simply ruled
that Lewis had no standing to oppose Kondaur’s motion. Again, based on the
limited record provided, this ruling was correct. The automatic stay protects only

15 1617

the debtor, property of the debtor, and the estate, and others who claim an

14 (...continued)
debtor’s property”).

15 See, e.g., § 362(a)(1), (a)(2), (a)(6)–(a)(8).

16 See, e.g., § 362(a)(5).

17 See, e.g., § 362(a)(2)–(a)(4).

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interest in the property at issue do not ordinarily have standing to contest a
motion for relief. 18 Lewis makes no attempt to show why this general rule does
not apply to him, and there is no basis to conclude that the Bankruptcy Court
abused its discretion in this regard.

Finally, appellants argue that any interest Kondaur might claim in the
Property is inferior to Lewis’ interest, and stay relief should have been denied on
that basis. An order granting relief from stay is not a final adjudication of the
parties’ various rights and interests in the subject property, however. 19 Instead, it
is only a determination that the party seeking relief has at least a colorable claim,
has established its burden under § 362(d), and that the state court is an
appropriate forum in which to litigate claims to the property at issue. 20 Again, the
appellants have not carried their burden to show that the Bankruptcy Court abused
its discretion in this regard.

IV. CONCLUSION
The Bankruptcy Court did not abuse its discretion when it granted the
motion for relief from stay. We therefore affirm.

18 See In re Teleservs. Group, Inc., 463 B.R. 28, 31 (Bankr. W.D. Mich.
2012).

19 In re Utah Aircraft Alliance, 342 B.R. 327, 332 (10th Cir. BAP 2006).

20 In re Evans, CO-10-031, 2011 WL 62121, at *2 (10th Cir. BAP Jan. 4,
2011).

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