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George Gingo, State Bar No.

147897
1
James Orth, pro hac vice, FL State Bar No. 75941
2 GINGO & ORTH
3239 N. U.S. Highway 1
3 P.O. Box 706
Mims, Florida 32754
4
321-264-9624 Office
5 866-311-9573 Fax
ggingo@yahoo.com
6

8 UNITED STATES BANKRUPTCY COURT


FOR THE EASTERN DISTRICT OF CALIFORNIA
9 SACRAMENTO DIVISION
10

11

12
IN RE: ) Case No.: 10- 29678-E-13L
13 ) DCN : GG-4
BERENICE THOREAU DE LA SALLE, )
14 PIERRE THOREAU DE LA SALLE ) MEMORANDUM OF LAW
) IN SUPPORT OF
15
) MOTION FOR STAY OF ORDER
16 ) OF CONVERSION PENDING
) APPEAL, PURSUANT TO FEDERAL
17 ) RULES OF BANKRUPTCY
Debtors ) PROCEDURE, RULE 8005
18
)
19 ) [Filed Concurrently with Notice of
) Motion and Motion for Stay of Order]
20 )
)
21
) DATE: June 28, 2011
22 ) TIME: 2:00 p.m
) JUDGE: SARGIS
23 ) COURTROOM: 33
) PLACE: 501 I Street, 6th Floor
24
) Sacramento, CA 95814
25 ___________________________________ )

26

27

28

0 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 I. JURISDICTION
2 On May 23, 2011, Debtors Berenice and Pierre Thoreau de la Salle filed a Notice of
3 Appeal from an Order (i) granting a Motion of US Bank NA as trustee for SARM 2005 19 XS
4 (―US Bank‖) to Convert Debtors’ chapter 13 case and (ii) Converting the case to chapter 7
5 [Dkt. No. 231, entered on May 9th, 2011].1 Notwithstanding the fact that the Notice of Appeal
6 has been filed [Dkt. No 251], this Court retains jurisdiction to rule on a Motion for Stay Pending
7 Appeal. Ho v. Dai Hwa Electronics (In re Ho), 265 B.R. 603 (9th Cir. BAP 2001)
8

9 II. STANDARDS FOR DISCRETIONARY STAYS


10 Federal courts have statutory or inherent power to stay judgments and orders pending
11 appeal. All Writs Act, 28 U.S.C. § 1651; 11 Wright & Miller pp. 331-32. A request for stay
12 ―must ordinarily be presented to the bankruptcy judge.‖ Fed. R. Bankr. P. 8005. The
13 bankruptcy court also possesses the authority to continue or suspend other proceedings in the
14 bankruptcy case or to enter any other order during the pendency of the appeal as will protect the
15 rights of all parties in interest. The accepted standards for discretionary stays were stated in
16 Schwartz v. Covington, 341 F.2d 537 (9th Cir. 1965). They are:
17
1. Appellant is likely to succeed on the merits of the appeal.
18
2. Appellant will suffer irreparable injury.
19 3. No substantial harm will come to appellee.
4. The stay will do no harm to the public interest.
20
Applying these standards, the Debtors are entitled to entry of a stay.
21

22
III. SUMMARY
23
The contentious issue in this case concerns creditor U.S. Bank's claim (#17) to own the
24
note and the deed of trust to the Debtors’ homesteaded real property. The Debtors had scheduled
25
1
The Debtors are additionally appealing Civil Minute Orders entered in the bankruptcy case denying the Debtors’
26 Motion to Confirm their Second Amended Plan [Dkt. No. 211], administratively consolidating the Objection to the
Proof of Claim filed by US Bank with Adversary Proceeding, Case no 10-02642 [Dkt. Nos. 213 & 195], staying the
27 hearing on the Objection to Claim of US Bank [Dkt. No. 233],vacating the Order to Compel Production of
Documents by US Bank [Dkt. No. ___, not yet entered], vacating the hearing on the Debtors’ Motion for Summary
28 Judgment on the Objection to the Proof of Claim by US Bank [Dkt. No. 86 in case no 10-02642], and rescheduling
the hearing re: Status Conference on the Debtors’ Adversary Proceeding [Dkt. No. 85 in case no 10-02642].

1 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 the mortgage loan as unsecured and disputed. The Debtors claimed that U.S. Bank lacked
2 standing and objected to claim #17 and U.S. Bank responded with an amended claim (#18)
3 which was supported with a post-petition assignment of the Deed of Trust from Mortgage
4 Electronic Registration Systems, Inc. to U.S. Bank. The assignment was made after the claims
5 bar date. The Debtors also filed an adversary petition challenging the standing of U.S. Bank.
6 The Court consolidated the Objection with the Adversary Proceeding.
7 The Court stressed numerous times that the debtor was to pay into a blocked account
8 sums for the mortgage loan. The Debtors contended that the debt was unsecured and disputed
9 and could not be calculated in any plan unless and until the Court ruled on the standing and claim
10 of U.S. Bank. For this proposition, the Debtors’ primary support referenced 11 U.S.C. 502 and
11 11 U.S.C. 1322(B)(5) and cases on standing. At a prior hearing on confirmation of the plan, the
12 Court rejected the Debtors’ chapter 13 plan as it did not provide for the payment of the mortgage
13 loan. The Debtors also filed a Motion for Summary Judgment on their Objection to claim.
14 U.S. Bank filed a Motion to Dismiss or Convert. At a hearing on the Motion to Dismiss,
15 the Court converted the Debtors’ case to a chapter 7 without granting the Debtors a hearing on
16 their Objection or their Motion for Summary Judgment. The Court stated that the basis for
17 granting the motion was the Debtors’ delay and other improprieties.
18 The two questions for the appeal will be: 1) whether 11 USC 502 (a) and (b) is a burden
19 shifting statute whereby a claim, which is subject to a properly supported objection, loses its
20 status of prima facie validity as an ―allowed claim‖ pending notice and a hearing on the
21 objection; and, 2) whether a creditor's standing must be determined prior to the Court (i)
22 entertaining the merits of the creditor’s motions to dismiss and (ii) requiring the debtor to pay to
23 a blocked account sums allegedly due to the creditor.
24 The Debtors contend that their Objection to U.S. Bank’s claim resulted in the claim
25 losing its ―allowed‖ status, and that there was no delay or impropriety upon their part; they have
26 diligently prosecuted the action. Having lost its allowed status upon the Objection, it is the
27 hearing on the Objection that would have provided the opportunity for the claim to be reinstated
28 as an allowed claim, assuming US Bank could have met its burden of proof with regard to its

2 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 standing as a litigant possessing a direct stake in the outcome of the bankruptcy case. Standing is
2 a threshold issue to be determined early in the case. It cannot be waived or overlooked. It is the
3 Court’s failure to address this issue, early on, that has led to this appeal.
4

5 IV. STATEMENT OF FACTS


6

7 1. On April 15, 2010, Debtors filed their chapter 13 petition.


8 2. Since filing their Voluntary Petition, the Debtors have diligently prosecuted their
9 bankruptcy case, making more than $12,000 in payments to the trustee for valid priority claims
10 according to their Second Amended Plan, including payments for back property taxes, back
11 federal income taxes and payments on the crammed down value of Berenice de la Salle’s car.
12 3. As part of the reorganization plan, the Debtors succeeded in stripping the second
13 lien on their home and prosecuting their Adversary Case, which contests the validity of the lien
14 of the purported creditor who has brought the Motion for Conversion, US Bank.
15 4. Additionally, while prosecuting the case in pro se, Mrs. De La Salle attended
16 every hearing, arguing the case in person, which necessitated her traveling more than five hours
17 by car to be present in court.
18 5. In light of the above, and in light of the 250 plus docket entries in the bankruptcy
19 case alone, the Court’s statement that the bankruptcy case is a sham and that no reorganization is
20 taking place is clearly erroneous.
21 6. On five occasions, over the repeated objections of the Debtors, this Court
22 continued the hearing on the Debtors’ Objection to US Bank’s purported claim, refusing to
23 entertain the merits of the Objection. Moreover,
24 a) when the Debtors filed a Motion for Summary Judgment on the Objection, this
25 Court vacated the hearing on that motion;
26 b) when the Debtors pointed out to the Court that a prima facie case of US Bank’s
27 standing to be before the Court and argue their Motion to Dismiss required that they first
28 demonstrate an undisputed interest in the bankruptcy case and that standing is lacking

3 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 where a ―secured creditor‖ cannot present the rudimentary elements of a claim,2 the Court
2 simply looked the other way and entertained the Motion to Dismiss over the Debtors’
3 objections;
4 c) and when the Debtors filed a Motion to Compel the Production of Documents
5 [Dkt. No. 151] by US Bank that would, if presented, trace the chain of title through valid
6 endorsements and show that US Bank has an interest in the relevant note, this Court took
7 more than 3 months to enter the order on the Motion to Compel and then, 2 weeks before
8 the production was due, vacated the order. (Transcript of May 3rd, 2011 hearing, at p. 15,
9 lns 2-12; [Dkt. No. 245])
10 7. On February 16, 2011, the purported creditor, US Bank, filed a Motion to Dismiss
11 or Convert the Debtors’ chapter 13 Case to one under chapter 7 [Dkt. 189]. The Motion was
12 brought pursuant to 11 U.S.C. §§ 1307 (c) and 109 (e).
13 8. Oral Argument was heard before this Court on May 3rd, 2011 [Dkt. No. 245]. By
14 opinion and order, dated May 3rd and May 9th, respectively, this Court denied the Motion to
15 Dismiss and granted the Motion to Convert to a chapter 7 [Dkt. Nos 230 (―Civil Minutes‖) &
16 231 (―Order of Conversion‖)].
17 9. The pertinent points from the Court’s four page ruling were:
18 a) The Debtors’ plan must include proper payment of the claim (of US Bank) which
19 is at issue. (pg 2 of Civil Minutes, ¶ 1 )
20 b) The debt must be paid as a claim in the bankruptcy case. No plan has been filed
21 by the Debtors for the payment of this secured claim. (pg 2 of Civil Minutes, ¶ 3)
22 c) In bankruptcy, the court and parties in interest deal with claims, not creditors. It
23 is the classification and treatment of claims which is required for a chapter 13 plan as
24 provided in 11 U.S.C. §§ 1322 and 1325. The Bankruptcy Code is not directed at
25 creditors. The Debtors want to ignore the secured claim. (pg 2 of Civil Minutes, ¶ 6)
26
2
In re Gavin, 319 B.R. 27, 2 (B.A.P. 1st Cir. 2004) (holding the moving party could not trace the chain of title
27 through valid endorsements); In re Wilhelm, 407 B.R. 392,398 (Bankr. Idaho 2009) (―each Movant must show that it
has an interest in the relevant note, and that it has been injured by debtor’s conduct‖).
28

4 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 d) The Debtors have clearly demonstrated that there is no reorganization taking
2 place in this bankruptcy case, but merely the litigation of their dispute with Movant.
3 (pg 2 of Civil Minutes, ¶ 6)
4 e) The Debtors allege that the creditor does not have standing to bring this motion
5 because it is not the holder of the secured claim. (pg 3 of Civil Minutes, ¶ 2)
6 f) Standing must be determined to exist before the court can proceed with the case.
7 (pg 3 of Civil Minutes, ¶ 3)
8 g) US Bank has standing to participate in this case and assert such positions and
9 rights as relate to the claim it asserts. Before US Bank would be paid on the claim,
10 the court would have to determine that it actually holds those rights. But that
11 determination does not mean that the Debtors can violate the Bankruptcy Code and
12 ignore the obligation they owe on the Note and Deed of Trust on the theory that those
13 issues cannot be considered until after they conclude their litigation with US Bank.
14 (pg 3 of Civil Minutes, ¶ 6) (emphasis added)
15 h) The Motion to Dismiss states grounds based on the Debtors having tendered zero
16 post-petition payment on the secured claim which US Bank asserts it has the right to
17 be paid. Further, Debtors are in default under 11 U.S.C. 1322 (b) (5) by failing to
18 make provision for paying this secured claim. (pg 4 of Civil Minutes, ¶ 1)
19 i) It is also asserted that the Debtors exceed the debt limits because they list $1,
20 116,910 as unsecured debt (apparently incorrectly listing the claim secured by their
21 residence as an unsecured claim). (pg 4 of Civil Minutes, ¶ 1)
22 j) The Debtors allege that if they are not eligible for chapter 13, they will convert
23 this case to one under chapter 11. (pg 3 of Civil Minutes, ¶ 2)
24 k) The principles for treatment of claims apply equally under chapter 11. Conversion
25 to chapter 11 would not change Debtors inability to value this claim. (pg 2 of Civil
26 Minutes, FN. 1 and FN. 2)
27 l) A Supplemental Opposition was filed by Debtors on April 15, 2011, requesting
28 that the Court take judicial notice of motions (sic) for summary judgment filed by the

5 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 Debtors in connection with the pending objections to claims (sic) and adversary
2 proceeding with US Bank. (pg 4 of Civil Minutes, ¶ 2)
3 m) The Debtors make a further interesting argument that any claims of US Bank are
4 disallowed or technically void pursuant to 11 U.S. C. § 502 (a) because the Debtors
5 have filed an objection to the claims (sic). Such a contention is a misstatement of the
6 law. A claim is not disallowed merely because the Debtors file an objection. The
7 Debtors must successfully prosecute the objection for the claim to be disallowed. 11
8 U.S.C. § 502 (b) states the grounds for which a claim will not be allowed in the
9 bankruptcy case. That occurs only after notice and hearing, to the extent
10 determined by the court. The Debtors cannot ignore the secured claim and
11 requirements of the Bankruptcy Code to provide for such claim merely on the
12 contention raised in an objection to the claim. (pg 4 of Civil Minutes, ¶ 3) (emphasis
13 added)
14 n) The Debtors have demonstrated … that they either choose or are unable to
15 comply with the Bankruptcy Code. Their conduct in this case clearly demonstrates
16 that they do not intend to prosecute a reorganization and provide for payment of any
17 creditor claims. (pg 4 of Civil Minutes, ¶ 4)
18 o) The court finds that the purported reorganization in this bankruptcy case is a
19 sham. (pg 4 of Civil Minutes, ¶ 5)
20 p) Cause exists to convert or dismiss this case for each of the following independent
21 grounds: (1) unreasonable delay by the Debtors that is prejudicial to creditors, (2)
22 failure to file a plan timely, (3) failure to commence making payments under a plan
23 proposed in good faith, and (4) failure to propose a plan or prosecute a reorganization
24 in good faith.‖ (pg 4 of Civil Minutes, ¶ 6)
25

26 IV. APPLICATION OF LEGAL STANDARD


27

28 1. Appellant is likely to succeed on the merits of the appeal.

6 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 The BAP and the court of appeals apply the same standard of review to an underlying
2 judgment of the bankruptcy court. The bankruptcy court’s findings of fact are reviewed under the
3 clearly erroneous standard and its conclusions of law are reviewed de novo. Windmill Farms,
4 841 F.2d 1467, 1469 (9th Cir.) (1988); Pistole v. Mellor (In re Mellor), 734 F.2d 1396, 1399 (9th
5 Cir.1984).
6 The Court has misinterpreted the plain language of the statutes it relied upon in making
7 its ruling. 11 U.S.C. § 502 states:
8
Allowance of claims or interests,
9
(a) A claim or interest, proof of which is filed under section 501 of this title, is
10 deemed allowed, unless a party in interest, including a creditor of a general
partner in a partnership that is a debtor in a case under chapter 7 of this title,
11 objects. (emphasis added)
12
11 U.S.C. § 502(b) then provides that only after notice and a hearing, the claim shall be
13
allowed except to the extent that any of nine specific exceptions apply to the claim. Section
14
502 (b) (1) applies to the instant case and reads:
15

16
….if such objection to a claim is made, the court, after notice and a hearing, shall
17 determine the amount of such claim in lawful currency of the United States as of
the date of the filing of the petition, and shall allow such claim in such amount
18 except to the extent that — (1) such claim is unenforceable against the debtor
19
and property of the debtor, under any agreement or applicable law for a reason
other than because such claim is contingent or unmatured; (emphasis added)
20

21 "[W]hen the statute's language is plain, the sole function of the courts—at least where the

22 disposition required by the text is not absurd—is to enforce it according to its terms." Lamie v.

23 United States Tr., 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (internal

24 quotation marks omitted). Applying the plain meaning of the statutory language, once a debtor

25 files a §502 (a) and (b) (1) objection to a claim, the claim is no longer accorded the allowed

26 status unless and until a hearing is held and the court rules upon the objection.

27 Not just any claim can be an ―allowed claim.‖ This type of claim is based on a writing –

28 the note and the deed of trust. Fed. R. of Bankr. Pro. section 3001(c) and (d) require that the

7 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 writing be produced along with proof of the security being perfected. Fed. R. of Bankr. Pro.
2 Section 3001(f) provides: ―(f) Evidentiary effect. A proof of claim executed and filed in
3 accordance with these rules shall constitute prima facie evidence of the validity and amount of
4 the claim.‖ Compliance with that statute shifts the burden to the debtor. The Debtors contend
5 that, when they filed their Objection, which was supported by evidence, the burden then shifted
6 back to the creditor. At that point, the claim no longer carried the presumption of validity and
7 only after a noticed hearing wherein the Objection was denied could the claim be restored to an
8 ―allowed claim.‖
9 Fed. R. Bankr. Pro. Section 3021 requires that only allowed claims be paid through a plan
10 and 11 U.S.C. 1322(b)(5) requires that payments may only be made to a real party in interest
11 with an allowed secured claim. 11 U.S.C. § 1326(b) speaks of the chapter 13 trustee distributing
12 plan payments "in accordance with the plan," the intent of the section is to direct plan payments
13 to creditors, and one cannot be a "creditor" without holding a "claim". 11 U.S.C. § 101(10).
14 Even though a secured creditor might choose to `ride through' a bankruptcy case by refusing to
15 file a claim, the bankruptcy rule mandates that the creditor may receive distributions out of the
16 plan only if it holds an allowed claim. In re Macias, 195 B.R. 659 (Bankr.W.D.Tex.1996) (See
17 also In re Schaffer, 173 B.R. 393, 394 (Bankr. N.D.Ill.1994); In re Alderman, 15,0 B.R. 246
18 (Bankr.D.Mont.1993); In re Wells, 12,5 B.R. 297 (Bankr.D.Colo. 1991); In re Thomas, 9,1 B.R.
19 117 n. 9 (Bankr. N.D.Ala.1988), aff'd on other grounds, 883 F.2d 991 (11th Cir.1989). See also
20 In re Kelley, 259 B.R. 580 (Bankr. E.D. Tex., 2001) at fn. 2)
21 As stated above, 11 U.S.C. 502(b) states nine exceptions wherein a debtor’s objection to
22 an otherwise allowed claim shifts the burden back to the creditor such that the claim is no longer
23 allowed. The Debtors’ Motion for Summary Judgment identified that the first such exception
24 was applicable to their Objection. The Debtors’ supplemental brief in support of objection to the
25 Motion to Dismiss asked the Court to take judicial notice of the Motion for Summary Judgment.
26 Thus, failure to object to a claim renders the claim allowed. But, as the Debtors have
27 successfully objected to US Bank’s claim, under §502(a) and (b) (1), the claim has lost its
28 allowed status pending an evidentiary hearing and ruling by the court. In re Smith, 123 B.R. 863

8 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 (Bankr.C.D.Cal., 1991) (where the court found the form and content of the claim met
2 Bankruptcy R. 3001 and the debtor’s objection terminated the "allowed" status).
3 This position is bolstered by the application of Bankruptcy Rule 3018(a). "[P]ursuant to
4 Sections 1126(a) and (c), only the holders of allowed claims may accept or reject a proposed
5 Plan. Pursuant to Section 502(a), a claim is deemed allowed unless a party in interest objects. It
6 would follow that absent a Court order, holders of claims which are the subject of a pending
7 objection may not accept or reject a proposed Plan." In re Orosco, 77 B.R. 246 (Bankr. N.D.
8 Cal., 1987) "It is clear that although the filing of a claim objection initially operates to preclude
9 the claimholder from accepting or rejecting a Plan, it also triggers a right on the part of the
10 claim-holder, [pursuant to Bankruptcy Rule 3018(a)], to request a temporary allowance for
11 purposes of voting, and thus, to participate in the balloting process." Id. In the case of In Re.
12 Michels, 270 B.R. 737, 741 - 742 (Iowa, 2001), the debtor had objected to an untimely claim
13 which was provided for as the ninth exception under 11 U.S.C. 502(b). The Court stated:
14
Section 1325(a)(5) sets out the requirements for treatment of allowed secured
15
claims in Chapter 13 plans. In order to be an "allowed" secured claim, a proof of
16 claim must be filed under § 501. 11 U.S.C. § 502(a). If an objection is filed, a
secured claim is not an allowed claim if a proof of claim was not timely filed. 11
17 U.S.C. § 502(b)(9). The deadline for filing a proof of claim is 90 days after the
first date set for the creditors' meeting. Fed. R. Bankr.P. 3002(c).
18
If an untimely secured claim is disallowed, the creditor would receive no
19 distribution under the plan, the claim would be discharged at the end of the plan,
the creditor may be precluded from seeking relief from the stay during the term of
20 the plan, and the creditor's lien may be at risk under § 506(d). See, 4 Keith
21
Lundin, Chapter 13 Bankruptcy § 290.1 at 290-3, - 4 (3d ed.2000). The conditions
for voiding a secured creditor's lien under § 506(d) are present when an untimely
22 proof of a secured claim is filed and a party successfully objects to that claim. Id.
§ 286.1, at 286-6. One case has noted that a trustee is entitled, and may be
23 obligated, to object to a tardily-filed secured claim. In re Macias, 195 B.R. 659
24
n.5, 663 (Bankr. W.D.Tex.1996).
In this case, the claims filing deadline was August 29, 2001. The Bank
25 tardily-filed its proof of claim asserting its secured claim on November 5, 2001.
Either Trustee or Debtor may have incentive to object to the Bank's claim as
26
untimely. Neither party has filed an objection to the claim at this time. Under the
27 existing record, if no objection is filed to the untimely filed claim of Maynard
Savings Bank, the claim will be allowed. However, if an objection is filed, the
28 untimely filed claim is automatically disallowed. (At page 741)

9 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
Under 11 U.S.C. § 502(a), a claim, proof of which is filed under § 501 of
1
this title, is deemed allowed unless an objection is filed by a party-in-interest. (At
2 page 742) (emphasis added)

3
While the disallowance of the secured claim in Michels was triggered by § 502 (b) (9), it
4
bears repeating that any of the nine exceptions will trigger disallowance and keep the claim in
5
that state unless and until a hearing sustaining the claim occurs. Debtors’ Objection to the claim
6
of U.S. Bank automatically resulted in that claim not being an allowed claim. The Court sternly
7
opposed this position and indicated in its tentative decision that this position would make the
8
debtor become the judge. (Civil Minutes of May 3rd, 2011 hearing at p. 4, ¶ 3 [Dkt. No 230])
9
But 11 U.S.C. 502 is merely a burden shifting provision that acts administratively, as it leaves
10
the ultimate decision of the status of the claim for the court after a noticed hearing.
11
The Debtors had been making payments for a full year on their proposed Plan and had
12
never been late. Had the Court held a hearing on the Debtors’ Objection instead of granting US
13
Bank 5 continuances3, the status of the claim would have been determined, the Debtors would
14
have been given findings of fact and conclusions of law, and a reasoned decision could have
15
been made whether to convert their case to, either, chapter 11 or 7, or remain in chapter 13.
16
Without a ruling, the Debtors’ chapter 13 plan, which was presented in good faith on August 9th,
17
2010 [Dkt. No.78], was kept in limbo for nearly eight months (until March 29th, 2011), over the
18
objections of the Debtors.
19
After denying the Debtors’ Second Amended Plan, on May 3rd, 2011, the Court
20
proceeded to hear US Bank’s Motion to Dismiss or Convert. Erroneously relying on 11 U.S.C.
21
§502 (c) to arrive at a determination that the Debtors must provide for US Bank’s purported
22
claim, at the hearing the Court remarked:
23
3
24 The Hearing on the Debtors’ Objection to Claim of US Bank N.A., was continued on five occasions as follows:
10/19/2010 [Dkt. No126], 11/30/2010 [Dkt. No146], 02/22/2011 [Dkt. No194], 03/03/2011 [Dkt. No196], and
25 03/29/2011[Dkt. No212]. On 04/04/2011, the Objection was administratively consolidated with the Adversary
Proceeding, case no. 10-2642. [Dkt. No213]. The Debtors repeatedly objected to these continuances on the grounds
26 that, while the merits of their Objection to US Bank’s claim were not being entertained by the Court, the merits of
US Bank’s motions to dismiss or convert were being considered. (Transcripts as follows: 10/19/2010, at p.4, lns 4-
27 10 [Dkt. No140]; 11/30/2010, at pp.5 & 16, lns 8-16 & 7-11 [Dkt. No146]; 01/18/2011, at pp.3&4, lns 2-25 & 1-13
[Dkt. No184]; 02/22/2011 at pp.3 & 4, lns 9-25 & 1-21, at pp. 9&10, lns 19-25 &1-4, and at pp. 20&21, lns 13-25
28 &1-11 [Dkt. No194]; 05/03/2011 at p.3, lns 7-11 & pp 4-6, beginning at ln13 [Dkt. No245]).

10 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1
―(T)he Bankruptcy Code allows and recognizes the fact that even though there is
2 an objection to a claim and it's disputed, that it can be provided for in a plan by
allowing the court to estimate the amount of the disputed claim.‖ ([Dkt. No. 245]
3 Transcript at p.9. lns 2-6)
4
In making this statement, the Court took the position that §502(c) provides a remedy to impose
5
sums to be paid into a blocked account on a disputed claim that has not been allowed pending
6
the Court’s approval of a plan. This misreads the law, which states:
7

8 11 USC 502(c):
There shall be estimated for purpose of allowance under this section—
9

10
(1) any contingent or unliquidated claim, the fixing or liquidation of which, as
the case may be, would unduly delay the administration of the case; or
11 (2) any right to payment arising from a right to an equitable remedy for
breach of performance.
12 (emphasis added)
13
First, US Bank’s purported claim is neither contingent4 nor unliquidated.5
14
Second, in order to read the above law as allowing the Court to require payments into a
15
blocked account for sums that a creditor alleges it ought to be paid, the Court would have to take
16

17 4
A contingent claim, in the context of bankruptcy law, is one in which there is a 'triggering event' or some
18 condition precedent for the debt to exist. All the events giving rise to a liability have not occurred before the filing of
a bankruptcy petition. "A claim is contingent as to liability if the debtor's legal duty to pay does not come into
19 existence until triggered by the occurrence of a future event and such future occurrence was within the actual or
presumed contemplation of the parties at the time the original relationship of the parties was created." In re All
20 Media Properties, Inc., 5 B.R. 126, 133 (Bankr. S.D. Tex 1980), aff'd, 646 F.2d 193 (5th Cir. 1981).

21 5
Claims which are owed by the debtor but have not been assessed a specific dollar value are termed unliquidated
claims. Whether or not a claim is in dispute does not make it an unliquidated claim. If the amount of the claim in
22 question cannot be determined within a specified time frame, the bankruptcy court will allow the amount of the
claim to be estimated to ensure the creditor will have certain rights to share the value of the debtor's assets. In the
23 instant case, it is not the amount of the debt that is in question. It is the debt itself purportedly owed to this particular
alleged creditor: US Bank. " The concept of liquidation has been variously expressed. The common ... thread has
24 been ready determination and precision in computation of the amount due. ... Some cases have stated the test as to
whether the amount due is capable of ascertainment by reference to and agreement by simple computation." A debt
25 is subject to simple calculation or "ready determination" if its amount can be determined in a simple hearing, as
opposed to an extensive and contested evidentiary hearing in which it will be necessary to introduce substantial
26 evidence to establish the amount of the debt. In re Loya, 123 B.R. 338, 340-41 (Bankr. 9th Cir. 1991); see generally
Matter of Pearson, 773 F.2d 751 (6th Cir. 1985) (discussing competing theories of when a debt is unliquidated).
27 (emphasis added)
28

11 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 the position that the nine exceptions, stipulated to in § 502 (b) (1) through (9), aren't really
2 exceptions - or that the nine exceptions have exceptions (exceptions to exceptions). This is
3 clearly erroneous. Before 11 USC 502(c) could be applicable, the Court would have to first
4 determine that the alleged claim is ―an allowed claim‖ through the statutorily mandated process
5 which requires a hearing on the Debtors’ Objection. This never occurred.
6 As a result of the Court’s interpretation of 11 USC §§502, 1322, 1325 and 1326, on
7 March 29th, 2011, the Court denied the debtor's a feasible Second Amended Plan that provides
8 payment for valid priority debts in this case to (i) the IRS, (ii) the lender on Mrs. De la Salle’s
9 car and (iii) the back property taxes on the Debtors’ home.
10 The result of the failure of the Court to rule upon the Debtors’ Objection at a noticed
11 hearing was a denial of due process. The denial has severely prejudiced the Debtors in that it has
12 resulted in a party, without a direct stake in the outcome of the bankruptcy case, being allowed to
13 convert that case to chapter 7, thus irreparably injuring the Debtors.
14

15 2. Appellant will suffer irreparable injury.


16 Because a conversion to chapter 7 takes control of the estate out of the hands of the
17 debtor, it seriously affects substantive rights and may lead to irreparable harm to the debtor if
18 immediate review is denied. See Mason v. Young (In re Young), 237 F.3d 1168, 1173 (10th
19 Cir.2001) (explaining that "under chapter 7, once the debtor's assets have been liquidated, it is
20 virtually impossible to reassemble them, and therefore an order converting to chapter 7 is
21 necessarily more final in nature than an order converting to chapter 13").
22 Should this Court fail to grant a stay of its Conversion Order the liquidation of the
23 Debtors’ estate will progress to the point where nothing will be left to be administered.
24 1. Mrs. de la Salle’s car will be repossessed, severely impairing her ability to work as a real
25 estate agent;
26 2. The Debtors home will be sold at foreclosure;
27 3. The homestead exemption, applicable in the event the Debtors prevail on their Adversary
28 Proceeding contesting the validity of US Bank’s purported lien, will be lost;

12 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 4. Back taxes due to the IRS will become immediately due and payable, which taxes the
2 Debtors cannot pay without the benefit of their Second Amended Plan;
3 5. The Debtors impaired credit rating will make it exceedingly difficult, if not impossible, to
4 find a rental where they could live.
5 Berenice and Pierre have been married for 35 years. They were forced into bankruptcy as
6 a result of financial adversity resulting from Pierre’s ill health. Pierre is eighty-five years of age
7 and is handicapped from the repercussions of a brain abscess suffered in late 2000. He relies
8 upon his wife for all of his care—both physical and financial. The consequential stress that will
9 result from the repercussions of conversion to chapter 7 risks endangering the health of both of
10 the Debtors as well as Berenice’s ability to provide for the both of them.
11 In a chapter 7 case, during the administration of the estate the debtor's rights are limited;
12 he loses control of his assets. See 11 U.S.C. Sec. 303(f). Once property of the estate is liquidated
13 there appears to be no way the debtor can force bona fide purchasers to return the assets. See
14 H.Rep. No. 595, 95th Cong., 1st Sess. 321 at 338 (1977), reprinted in 1978 U.S.Code Cong. &
15 Ad.News 5787; 2 Collier on Bankruptcy, (15th ed. 1983) at p 349.03. In re Mason, 709 F.2d
16 1313 (C.A.9, 1983). Thus, without a stay, the appeal would become an empty gesture, moot.
17 Under these circumstances it is imperative that the status quo, before the entry of the Conversion
18 Order, be maintained. The power to maintain the status quo pending appeal "should always be
19 exercised when any irremediable injury may result from the effect of the decree as rendered"
20 Hovey v. McDonald, 109 U.S. 161, 3 S.Ct. 143.
21 The irreparable harm that the Appellants will suffer should the stay not be granted is undeniable.
22

23 3. No substantial harm will come to appellee.


24 Granting the stay pending appeal is the least prejudicial option for both parties. Even if
25 the stay prohibits U.S. Bank from regaining possession of the Debtors home in the near term,
26 that inconvenience is appropriate because US Bank has failed to meet its threshold burden of
27 tracing the chain of title to the Debtors’ residence through valid endorsements, showing that it
28 has an interest in the relevant note, and demonstrating that it has been injured by the Debtors’

13 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 conduct. In re Gavin, 319 B.R. 27, 2 (B.A.P. 1st Cir. 2004); In re Wilhelm, 407 B.R. 392,398
2 (Bankr. Idaho 2009). Insurance is maintained upon the home resulting in protection of the asset.
3 The appellee will suffer no harm because the property, itself, provides sufficient surety for the
4 granting of the stay without the requirement of posting a bond. Where the mortgage or deed of
5 trust on the property already provides adequate security for the obligation, several courts have
6 refused to require a bond from trustors or mortgagors seeking to enjoin foreclosure. See, e.g.,
7 Phleger, 2007 U.S. Dist. LEXIS 86413, at *16-19; Thomas v. F.F. Fin. Inc., No. 887178, 1989
8 WL 37658, at *1 (S.D.N.Y. Apr. 12, 1989); Medin v. Liberty State Bank, No. C790-1549, 1990
9 Minn. App. LEXIS 994, at *4-5 (Minn. App. Oct. 16, 1990).
10 Moreover, where the posting of a bond is financially impossible for the appellants and the
11 purported creditor/appellee has not met its threshold burden of proving standing and injury in
12 fact, it would be highly inequitable to require that a bond be posted pending appeal, as such a
13 requirement would effectively hand a bogus creditor a ―win by default‖ rather than on the merits
14 of their alleged claim.
15 At the January 18th, 2011 hearing on the Debtors’ Motion to Compel Production of
16 Documents, this Court remarked:
17
―… I don't think it's an unreasonable expectation that the creditor is saying --
18 "I'm a creditor." Just put forth a basic showing of how the note gets from the
original creditor to the person stepping forward today and be able to affirmatively
19 state and provide evidence, if necessary, that they are in possession of the
note…‖ (transcript, pg.39, lns 6-12 [Dkt. No.184)
20

21
US Bank has never presented the ―basic showing of how the note (got) from the original
22
creditor to (them).‖ Any post petition payment lost to the appellee is the result of US Bank’s own
23
negligence. As the controversy has been created by the negligence of appellee/US Bank, it is US
24
Bank that must suffer the consequences during the period of appeal.
25

26
4. The stay will do no harm to the public interest.
27
This case is a private matter between parties. None of the issues have anything to do
28
with the public interest. No harm can be done to the public interest by granting the stay.

14 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L
1 V. CONCLUSION
2 The Debtors were denied a hearing on their Objection to the claim of U.S. Bank, they
3 were denied a hearing on their standing challenge to U.S. Bank and they were denied a hearing
4 on their Motion for Summary Judgment.
5 The Court converted this case to a chapter 7 on the misinterpretation of statute and case
6 law which provide that a properly supported objection to a claim results in the claim losing its
7 status as ―allowed,‖ pending a noticed hearing. The Court failed to provide a noticed hearing
8 and determined that the claim was allowed despite the Objection. Given the Court's
9 determination that the claim was allowed, the Court then determined that Debtors’ actions were a
10 subterfuge for delay and other impropriety. Had the Court interpreted 11 U.S.C. 502 to have
11 shifted the burden back to U.S. Bank to prove at a noticed hearing that the claim was allowed,
12 the Court could not have found delay and impropriety in the Debtors’ actions. Had the Court
13 granted a hearing on the Debtors’ challenge to the standing of U.S. Bank and found for the
14 Debtors, the Court could not have found delay and impropriety in the Debtors’ actions.
15

16 WHEREFORE, the Debtors respectfully request that this Court:


17 (i) enter a stay of its Order of Conversion of the Debtors’ chapter 13 case to
18 a case under chapter 7 pending appeal;
19 (ii) for such other relief as this Court shall deem proper.
20

21 DATED: May 25, 2011


22

23 Signed: /s/ George M. Gingo


GEORGE M. GINGO
24
Attorney for Debtors, Berenice and Pierre Thoreau de la Salle
25 GEORGE GINGO, CSB 147897
JAMES ORTH, PRO HAC VICE (FL 75941)
26 P.O. BOX 706,
MIMS, FLORIDA 32754
27
OFFICE: (321) 264-9624
28 FAX: (866) 311-9573
ggingo@yahoo.com

15 MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY OF ORDER OF CONVERSION PENDING APPEAL;
Case No 10-29678-E-13L

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