RFS Motion by Wells Fargo (Memo) - Filed 5-20-2014

7/21/2019 RFS Motion by Wells Fargo (Memo) - Filed 5-20-2014

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KEITH C. OWENS (SBN 184841)[email protected]

JENNIFER L. NASSIRI (SBN 209796)

[email protected] LLP2049 Century Park East, Suite 2100Los Angeles, CA 90067Telephone: (310) 229-9900Facsimile: (310) 229-9901

Attorneys for Wells Fargo Bank, N.A., as Trusteefor the registered holders of Banc of AmericaCommercial Mortgage Inc., Commercial MortgagePass-Through Certificates, Series 2006-3, by andthrough CWCapital Asset Management LLC, solely

in its capacity as Special Servicer

UNITED STATES BANKRUPTCY COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

SANTA ANA DIVISION

In re:

LAGUNA BRISAS, LLC,Debtor.

Case No.: 8:12-bk-12599-ES

Chapter 11

MEMORANDUM OF POINTS AND

AUTHORITIES IN SUPPORT OF MOTIONFOR RELIEF FROM AUTOMATIC STAY

Hearing DateDate: June 10, 2014Time: 9:30 a.m.Ctrm: 5A

411 W. 4th StreetSanta Ana, CA 92701-4593

Judge: The Honorable Erithe A. Smith

Case 8:12-bk-12599-ES Doc 564 Filed 05/20/14 Entered 05/20/14 14:39:58 Desc Main Document Page 1 of 22



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TABLE OF CONTENTS

I. RELEVANT FACTS................................................................................................................ 3

II. LEGAL ARGUMENT.............................................................................................................. 6

A. THE SENIOR LIENHOLDER IS ENTITLED TO RELIEF FROM THEAUTOMATIC STAY BECAUSE THE DEBTOR HAS BREACHEDTHE POST-PETITION SETTLEMENT AGREEMENT ............................................ 7

B. CAUSE EXISTS FOR RELIEF FROM STAY BECAUSE THE CASEWAS FILED IN BAD FAITH...................................................................................... 8

C. THE TRUST IS ENTITLED TO RELIEF FROM THE AUTOMATIC

STAY PURSUANT TO SECTION 362(D)(2) BECAUSE THERE IS NO EQUITY IN THE PROPERTY AND THE PROPERTY IS NOT NECESSARY FOR AN EFFECTIVE REORGANIZATION................................... 10

1. THERE IS NO EQUITY IN THE PROPERTY............................................. 10

2. THE PROPERTY IS NOT NECESSARY FOR ANEFFECTIVE REORGANIZATION............................................................... 11

III. CONCLUSION....................................................................................................................... 12




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TABLE OF AUTHORITIES

Cases

In re Ashgrove Apartments of DeKalb County, Ltd.,121 B.R. 752, 756-57 (Bankr. S.D. Ohio 1990) ........................................................................ 11

In re Castleton Assocs. Ltd. P’ship,109 B.R. 347, 350 (Bankr. S.D. Ind. 1989) ................................................................................. 8

In re Dev., Inc.,36 B.R. 998, 1004 (Bankr. D. Haw. 1984) ................................................................................ 10

In re Holley’s, Inc.,140 B.R. 643, 702 (Bankr. W.D. Mich. 1992)........................................................................... 11

In re Indian Palms Assoc., Ltd.,61 F. 3rd 197, 206-8 (3rd Cir. 1995).......................................................................................... 10

In re Johnston,31 B.R. 202, 205 (Bankr. D. Vt. 1983) ...................................................................................... 11

In re Little Creek Dev. Co.,779 F.2d 1068, 1073 (5th Cir. 1986) ........................................................................................... 8

In re Martin,19 B.R. 496, 498 (Bankr. E.D. Pa. 1982) .................................................................................. 11

In re Sun Valley Newspapers, Inc.,

171 B.R. 71, 75 (Bankr. 9th Cir. 1994)...................................................................................... 11

In re Winshall Settlor’s Trust,758 F.2d 1136, 1137 (6th Cir. 1985) ........................................................................................... 8

La Jolla Mort. Fund v. Rancho El Cajon Assoc.,18 B.R. 283, 290 (Bankr. S.D. Cal. 1982) ................................................................................. 10

Stewart v. Gurley,745 F.2d 1194, 1196 (9th Cir. 1984) ......................................................................................... 10

Stolrow v. Stolrow’s, Inc. (In re Stolrow’s Inc.),84 B.R. 167, 171 (9th Cir. B.A.P. 1988)...................................................................................... 8

United Sav. Ass’n. of Texas v. Timbers of Inwood Forest Assoc., Ltd.,484 U.S. 365, 108 S. Ct. 626, 98 L. Ed. 2d 740 (1988)....................................................... 10, 11

Statutes

11 U.S.C. § 362(d)(1) .................................................................................................................... 6, 8

11 U.S.C. § 362(d)(2) .................................................................................................................. 6, 10

11 U.S.C. § 362(d)(2)(B) ................................................................................................................. 11




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Wells Fargo Bank, N.A., as Trustee for the registered holders of Banc of America Commercial

Mortgage Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-3 (the “Trust”), by and

through CWCapital Asset Management LLC (“CWCAM”), solely in its capacity as Special Servicer

(collectively, the “Senior Lienholder”), hereby files this memorandum of points and authorities in

support of its Motion for Relief From the Automatic Stay (the “Motion”) in the above-captioned

chapter 11 bankruptcy case (the “Bankruptcy Case”) filed by the debtor, Laguna Brisas, LLC (the

“Debtor”).

The Debtor owns the Best Western Laguna Brisas Spa Hotel located in Laguna Beach,

California. The Debtor’s leasehold interest in the Hotel (defined below) is secured by Senior

Lienholder’s first priority deed of trust. The Debtor filed its Chapter 11 bankruptcy petition on

February 29, 2012 – more than 27 months ago. The Hotel has been operating under receivership

since late 2011, and the receiver has continued to operate the Hotel throughout the bankruptcy case.

In October 2013, after a 10-hour mediation presided over by the Honorable Scott C. Clarkson, the

Debtor, Senior Lienholder, and the second and third lienholders entered into a Settlement Agreement

(defined below). The Settlement Agreement, among other things, required the Debtor to sell or

refinance the Hotel by June 30, 2014 and to make a net payment to the Senior Lienholder in the

amount of $10 million from the proceeds of sale or refinance. The Settlement Agreement further

provides that the automatic stay terminates automatically without further order of the Court to

permit the Senior Lienholder to exercise its rights and remedies under the Loan Documents (including

foreclosure) if its allowed secured claim is not paid in full by June 30, 2014. The Settlement

Agreement also required the Debtor to promptly file a Chapter 11 plan after Court approval of the

Settlement Agreement, among other things. The Court approved the Settlement Agreement at the

hearing on November 8, 2013, and an amended order approving compromise was entered on

December 16, 2013. More than five months have now passed since the amended order approving

compromise was entered and the Debtor has failed to file its Chapter 11 plan.

As discussed below, cause exists for relief from stay under 11 U.S.C. § 362(d)(1) because,

among other things, the Debtor has breached the terms of the Settlement Agreement and has not

timely cured the defaults referenced in the Notice of Default (defined below). Specifically, the Debtor






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The Motion is supported by this Memorandum of Points & Authorities, the Declaration of

Keith C. Owens and the Request for Judicial Notice filed concurrently herewith, and the entire record

in this case. In further support of the Motion, the Senior Lienholder respectfully states as follows:

I. RELEVANT FACTS

1. The Debtor filed the above-captioned bankruptcy case to stop the foreclosure of the

Best Western Laguna Brisas Spa Hotel (the “Hotel”). The Hotel has been operating under

receivership since late 2011 - approximately four (4) months prior to the Debtor’s bankruptcy filing on

February 29, 2012. See Request for Judicial Notice (“RJN”), Ex. 14, p. 655. After an evidentiary

hearing on the Senior Lienholder’s motion to excuse Byron Chapman (the “Receiver”) from turning

over the Hotel property to the Debtor, the Court ordered that the Receiver remain in place. The

Receiver continues to operate the Hotel during the pendency of the bankruptcy case. [Docket No. 87].

2. This case has been very contentious, with the Debtor taking actions that have called

into question the Debtor’s ability to serve as debtor in possession. For example, the Senior Lienholder

filed a motion to appoint a Chapter 11 trustee after discovering that the Debtor made false

representations regarding the source of the Debtor’s pre-petition retainer, the Debtor’s assets and

liabilities, and other issues indicating the Debtor’s inability or unwillingness to fulfill its

responsibilities as a debtor in possession. [Docket Nos. 300-306]. At the hearing on the Senior

Lienholder’s motion to appoint a Chapter 11 trustee on April 9, 2013, the Court expressed concern

about the allegations of wrongdoing leveled at the Debtor. See RJN, Ex. 4, pp. 90-91. The Court

encouraged the parties to attempt to settle this case, and ordered the parties to participate in Court-

ordered mediation. The Court selected the Honorable Scott Clarkson as the mediator. Shortly

thereafter, the Debtor retained yet a third lawyer, Giovanni Orantes, as successor reorganization

counsel to M. Jonathan Hayes. [Docket No. 529].

3. On May 13, 2013, counsel for the Debtor, the Senior Lienholder, and Kay Nam Kim

and Mehrdad Elie (the “Junior Lienholders”) participated in the Bankruptcy Court-ordered mediation

before Judge Clarkson (the “Mediation”). The Mediation lasted nearly 10 hours, and resulted in a

settlement agreement, the material terms of which were recorded by Judge Clarkson’s court reporter.




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A true and correct copy of the Settlement Agreement and Mutual Releases dated October 23, 2013

(the “Settlement Agreement”), is attached to the Declaration of Keith C. Owens (“Owens

Declaration”) as Exhibit A.1

4. On November 8, 2013, the Court granted the motion to approve compromise and

approved the Settlement Agreement. [Docket No. 522]. On December 16, 2013, the Court entered an

Amended Order Approving Compromise of Controversy [Docket No. 533] (the “Compromise Order”).

A true and correct copy of the Compromise Order is attached to the Owens Declaration as Exhibit B.

The Order provides, among other relief, as follows:

In the event that the Sale or refinancing of the Hotel sufficient to satisfy the allowedclaims of the Secured Creditors does not occur by the Closing Date (unless otherwiseagreed by the Secured Creditors in writing), the automatic stay shall be and hereby islifted and terminated to enable the Secured Creditors to enforce their respective rightsand remedies with respect to the Hotel under applicable non-bankruptcy law withoutfurther order of the Court.

The Closing Date is defined in the Settlement Agreement as June 30, 2014. Id. p. 18, ¶ 2.2.

5. On April 22, 2014, counsel for Movant sent Debtor’s counsel a Notice of Default

Under Settlement Agreement (the “Default Notice”). A true and correct copy of the Default Notice is

attached to the Owens Declaration as Exhibit C.

6. The Debtor is in default under the terms and conditions set forth in the Settlement

Agreement. The following acts and omissions constitute event of default under the Settlement

Agreement:

• The Debtor has failed to “promptly file the Amended Plan, and seek Bankruptcy Courtapproval of the same, after the Bankruptcy Court’s entry of an order approving thisAgreement under Federal Rule of Bankruptcy Procedure 9019.” See Settlement

Agreement, § 2.1. Indeed, although the Compromise Order was approved by the Courton December 16, 2013, the Debtor has not filed an Amended Plan that incorporates theterms of the Settlement Agreement as required under the terms of the SettlementAgreement.

• The Debtor failed to obtain the “written consent of the Creditor Parties, or an order of the Bankruptcy Court.” Settlement Agreement, § 2.3. to retain a broker other than

1 The Debtor was unwilling to move forward with the agreement as agreed to at Mediation and filed a motionto enforce an older version of the settlement agreement. [Docket No. 418]. Ultimately, the parties reachedan agreement as embodied in the Settlement Agreement after the Honorable Erithe Smith ordered the matter

transferred to Judge Clarkson to resolve the issues. [Docket No. 449].




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CBRE, Inc. to list, market and sell the Hotel Specifically, Rod Apodaca of CBRE, Inc.notified the parties that Andy Kim had entered into a listing agreement with another

broker. See email dated April 4, 2014, a true and correct copy of which is attached as

Exhibit A to the Default Notice. Debtor’s counsel indicated that they intended toconfirm that the Debtor was seeking to withdraw the new listing agreement, and wouldget back to everyone. See email dated April 4, 2014 from Giovanni Orantes, a true andcorrect copy of which is attached to the Default Notice as Exhibit B. To date, Debtor’scounsel has not provided any information regarding the status of the new listing or theDebtor’s intentions to renew the listing with CBRE upon expiration of the listingagreement.

• The Debtor has failed to cooperate with Wells Fargo or the Junior Lienholders byfailing to keep them informed of the Debtor’s efforts, if any, to sell or refinance theHotel. Specifically, Section 10 of the Settlement Agreement requires the parties to

provide further assurances as may be reasonably necessary to implement the SettlementAgreement. Counsel for Movant has sent Debtor’s counsel repeated emails and leftnumerous messages requesting an update regarding the status of the case and theDebtor’s efforts to sell or refinance the Hotel. See emails attached to the Default

Notice as Exhibit C.

• The Debtor breached the Settlement Agreement by failing to file a notice of confidential Strike Price under seal in accordance with Section 2.8 of the SettlementAgreement.

• The Debtor has embarked on costly litigation against the Ground Lessor rather than

focusing its efforts on selling or refinancing the Hotel. Wells Fargo submits that thelawsuit constitutes a breach of the covenant of good faith and fair dealing, and conflictswith the Debtor’s obligations to sell the Hotel. First, such litigation has arguablychilled bidding without providing any benefit to the Junior Lienholders or unsecuredcreditors. Second, the litigation will arguably be moot if a sale or refinancing does notoccur by June 30, 2014 – in which case the automatic stay is lifted to permit WellsFargo to pursue all rights and remedies under the Loan Documents and applicable law.Wells Fargo questions the Debtor’s motives in pursuing its claim against the GroundLessor at this late date in the case, particularly given the likelihood that the bankruptcycase is administratively insolvent, and the fact that any recoveries ultimately received

by the bankruptcy estate constitute Wells Fargo’s cash collateral. It appears that the

Debtor is acting for the sole benefit of insiders, while putting Wells Fargo’s collateralat risk.

7. Section 9 of the Settlement Agreement provides that:

An event of default shall occur if the Laguna Brisas Parties among other things, breach any provisions of this Agreement or the Chapter 11 Plan confirmed pursuant to this Agreement. In the event of such default, written notice shall be provided to all Parties as set forth in paragraph 16 hereof. Except as is otherwise provided herein, the Debtor shall have five (5) calendar days after service of notice of default upon the Debtor by any of the Creditor Parties in writing to cureany such default.




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Owens Declaration, Ex. A., ¶9.

8. At the request of Debtor’s counsel, counsel for the Senior Lienholder agreed to extend

the 5-day cure period to cure the defaults to May 6, 2014. See Owens Declaration, at ¶6 Exhibit D.

The Debtor’s counsel has failed to cure such defaults, and is in breach of the Settlement Agreement.

9. The Debtor has willfully breached the Settlement Agreement and has failed to timely

cure the defaults. The purpose of the Bankruptcy Code is not to protect an investment at the expense

of the secured lender. In addition and importantly, the Debtor has no business to reorganize nor any

ability to reorganize. There is simply no ability for the Debtor to consummate a sale. Accordingly,

the automatic stay should be terminated (i) for cause – based on breach of the Settlement Agreement,

(ii) because the Debtor has no equity in the Hotel and the Hotel is not necessary for an effective

reorganization that is reasonably in prospect, and (iii) because the bankruptcy case was filed in bad

faith.

10. On February 20, 2014, the Debtor filed a Chapter 11 Status Report [Docket No. 547]

wherein the Debtor, among other things, described the extensive marketing efforts undertaken by

CBRE, Inc. to market the Hotel for sale. The Debtor admits that only two offers were received prior

to the Call for Offer Date, both of which were significantly less than the amount needed to pay the

Senior Lienholder’s allowed claim in accordance with the terms of the Settlement Agreement – let

alone the claims held by the Junior Lienholders. See RJN, Exhibit 8.

II. LEGAL ARGUMENT

Pursuant to Section 362(d)(1) of the Bankruptcy Code, the Senior Lienholder is entitled to stay

relief “for cause” because the Debtor breached the Settlement Agreement and filed this Bankruptcy

Case with a lack of good faith. The Senior Lienholder is also entitled to stay relief under Section

362(d)(2) of the Bankruptcy Code because the Debtor lacks equity in the Property and the Property is

not necessary for an effective reorganization that is reasonably in prospect.




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A. THE SENIOR LIENHOLDER IS ENTITLED TO RELIEF FROM THE

AUTOMATIC STAY BECAUSE THE DEBTOR HAS BREACHED THE POST-

PETITION SETTLEMENT AGREEMENT

Cause exists for relief from the automatic stay because the Debtor has admittedly breached the

Settlement Agreement post-petition. It is axiomatic that the automatic stay does not extend to claims

arising after the filing of the bankruptcy case. See Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d

992 (5th Cir. 1985). Section 362(a)(1) applies to actions which were or could have been filed against

the Debtor before the case was filed, or actions to recover “claims” against the Debtor. Claims based

on the Debtor’s breach of the Settlement Agreement arose after Court approval of the Settlement

Agreement.

Furthermore, the Debtor and its counsel’s failure to comply with the terms of the Settlement

Agreement that was so heavily negotiated with all major stakeholders is not only a breach of the

Settlement Agreement, but a breach of their fiduciary duty to creditors. See In re Count Liberty, LLC ,

370 B.R. 259, 276 (Bankr. C.D. Cal. 2007) (finding that an attorney’s failure to comply with a court

order requiring the debtor to deposit net proceeds from sale into interest-bearing account, and

prohibiting use without further order of court, constituted a breach of his fiduciary duty and warranted

the imposition of sanctions). “A debtor in possession’s attorney must be proactive” and cannot

“simply close his eyes to matters that may have an adverse legal consequence to the estate.” Id. at

281-82 (citations omitted). To this day, the Debtor has not complied with material terms of the

Settlement Agreement.

In addition, relief from stay at this time is appropriate because the terms of the Settlement

Agreement permit the Senior Lienholder to enforce its rights and remedies under the Loan Documents

and applicable law (including the right to foreclose) without seeking further relief from stay if a sale or

refinancing does not occur by the Closing Date. In the instant case, the Debtor has not identified any

potential prospects to purchase or refinance the Hotel to pay the allowed amount of the Senior

Lienholder’s secured claim. Indeed, the Debtor has not presented any offers sufficient to satisfy the

terms of a sale under the Settlement Agreement. See RJN, Ex. 8. Because no such offers are in

prospect, and would be subject to an auction an overbid in any event, the Debtor is simply unable to




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sell or refinance the Hotel by the Closing Date even if a sufficient offer would miraculously

materialize.

Although the Debtor’s professionals have not yet filed their final fee applications, it is beyond

dispute that the case is administratively insolvent. See Owens Declaration, Ex. E (email dated May 9,

2014 from Debtor’s counsel inquiring how administrative and priority claims will be paid, and stating

that “[f]easiblity seems also questionable in light of the analysis below [citing the Monthly Operating

Reports for the past 12 months]; RJN, Ex. 5 (copies of the monthly operating reports since December

2013). Accordingly, the Senior Lienholder is entitled to relief from the automatic stay to exercise its

rights and remedies under the Loan Documents and non-bankruptcy law rather than to wait until the

Closing Date – particularly as the Debtor is in default under the Settlement Agreement. There is

simply no justification for permitting this case to remain in Chapter 11 any longer, and the Senior

Lienholder is entitled to stop the bleeding, minimize the further accrual of administrative expenses

(which cannot be paid), and foreclose on its collateral as contemplated under the Settlement

Agreement.

B. CAUSE EXISTS FOR RELIEF FROM STAY BECAUSE THE CASE WAS

FILED IN BAD FAITH

In addition, the automatic stay should be terminated to allow the Senior Lienholder to enforce

its rights and remedies against the Property and as provided in the Loan Documents and applicable law

because the Debtor filed the Bankruptcy Case in bad faith.2 Where a Chapter 11 debtor has only one

significant asset secured by one main creditor,3 the good faith/bad faith determination focuses upon

whether the filing of the Chapter 11 is “consistent with the aims and objectives of bankruptcy

2Pursuant to Section 362(d)(1) of the Bankruptcy Code, relief from the automatic stay shall be granted “for cause,”including, without limitation, where the debtor filed its bankruptcy with a lack of good faith. See 11 U.S.C. §

362(d)(1); see also Little Creek Dev. Co v. Commonwealth Mortgage Corp. (In re Little Creek Dev. Co.), 779 F.2d

1068, 1072 (5th Cir. 1986) (“Numerous cases have found a lack of good faith to constitute “cause” for lifting the stay

to permit foreclosure or for dismissing the case.”) The “Bankruptcy Code does not define good faith. In order to

determine whether a debtor has filed a case in good faith, the court’s inquiry should focus on certain objective factors.

See Stolrow v. Stolrow’s, Inc. (In re Stolrow’s Inc.), 84 B.R. 167, 171 (9th Cir. B.A.P. 1988) (noting that the Ninth

Circuit has adopted the factors summarized in In re Little Creek Dev. Co., 779 F.2d 1068, 1073 (5th Cir. 1986)).

3 Although the Debtor purported to encumber the Hotel without the Senior Lienholder’s consent in violation of the Loan

Documents by borrowing money from the Junior Lienholders, it is clear that the Junior Lienholders are unsecured

creditors.




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philosophy.” In re Castleton Assocs. Ltd. P’ship, 109 B.R. 347, 350 (Bankr. S.D. Ind. 1989). Central

to the “aims and objectives of bankruptcy philosophy” is whether the debtor has an ongoing business

which it intends to reorganize. See In re Winshall Settlor’s Trust, 758 F.2d 1136, 1137 (6th Cir.

1985). “Resort to the protection of the bankruptcy laws is not proper… [where] there is no going

concern to preserve, there are no employees to protect, and there is no hope of rehabilitation, except

according to the debtor’s ‘terminal euphoria.’” In re Little Creek Dev. Co., 779 F.2d 1068, 1073 (5th

Cir. 1986).

Courts examine the following factors to determine whether a case was filed with a lack of good

faith: (i) the debtor has one main asset; (ii) the debtor’s secured creditor’s lien encumbers the debtor’s

main asset; (iii) the debtor has no employees; (iv) there is little or no cash flow and no available

income to sustain a plan of reorganization or to make adequate protection payments; (v) there are few

unsecured creditors whose claims are relatively small; (vi) there are allegations of wrongdoing by the

debtor or its principals; (vii) the debtor is afflicted with the “new debtor syndrome; and

(viii) bankruptcy provides the only possibility of delaying a pending foreclosure. See In re Stolrow’s,

84 B.R. at 171.

Any objective analysis of the foregoing factors demonstrates that the Bankruptcy Case was

filed with a lack of good faith:

(i) The Debtor’s only significant asset is the Hotel. See RJN, Ex. 1, 2 and 3 [Docket Nos.

1, 50 and 82] (Petition, Schedules A and B).

(ii) The Hotel is fully encumbered. Compare Owens Declaration, Ex. A (Settlement

Agreement fixing allowed secured claims at $12,020,000) with RJN, Ex. 8 and Owens Declaration,

Ex. E (Status Report indicating that no offers sufficient to pay the secured claims have been received).

(iii) The Debtor has no current employees as all employees are employed by the Receiver.

See RJN, Ex. 2 and 3.

(iv) The Hotel does not generate sufficient cash flow to provide income to the Debtor to

sustain a plan of reorganization. See RJN, Ex. 5. The Debtor has unencumbered assets or source of

funds to pay even the costs of its bankruptcy case. See RJN, Ex. 5; Owens Declaration, Ex. E. The

Hotel does not produce sufficient income to fund the foregoing amounts, and the Debtor has no




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entitlement to any funds from the Hotel. Id. In addition, the Debtor has no right to receive

distributions from the Hotel under the terms of the Settlement Agreement.

(v) There are few “real” unsecured creditors, and those who exist hold relatively small

claims. See RJN, Ex. 2, 3 and 6.

(vi) Bankruptcy provides the only possibility of delaying a pending foreclosure. The Senior

Lienholder commenced a non-judicial foreclosure proceeding on June 2, 2011, with the foreclosure

sale set to occur one day after the Petition Date. RJN, Ex. 14. This case was filed with the sole

purpose of delaying the foreclosure sale that was scheduled to occur.

The Court should grant relief from stay because it is apparent that the Debtor filed the

bankruptcy case in bad faith and has no legitimate reorganization purpose.

C. THE TRUST IS ENTITLED TO RELIEF FROM THE AUTOMATIC STAY

PURSUANT TO SECTION 362(D)(2) BECAUSE THERE IS NO EQUITY IN

THE PROPERTY AND THE PROPERTY IS NOT NECESSARY FOR AN

EFFECTIVE REORGANIZATION

A secured creditor is entitled to relief from the automatic stay if: (i) the debtor lacks equity in

the property, and (ii) the property is not necessary for an effective reorganization that is in prospect.

See 11 U.S.C. § 362(d)(2); United Sav. Ass’n. of Texas v. Timbers of Inwood Forest Assoc., Ltd., 484

U.S. 365, 108 S. Ct. 626, 98 L. Ed. 2d 740 (1988).

1. There Is No Equity In the Property

In determining whether there is equity in the Property, the Court must count all encumbrances

against the Property, including all costs and fees. See Stewart v. Gurley, 745 F.2d 1194, 1196 (9th

Cir. 1984); In re Dev., Inc., 36 B.R. 998, 1004 (Bankr. D. Haw. 1984); La Jolla Mort. Fund v. Rancho

El Cajon Assoc., 18 B.R. 283, 290 (Bankr. S.D. Cal. 1982); see also In re Indian Palms Assoc., Ltd.,

61 F. 3rd 197, 206-8 (3d Cir. 1995).

As discussed above, the Debtor’s own Status Report states that only two offers were received

after extensive marketing, which offers were insufficient to pay the claims of the Senior Lienholder

and the Junior Lienholders. See RJN, Ex. E. It is undisputed that the Trust is owed $11,288,114.19

under the terms of the Settlement Agreement, and is entitled to payment of $10 million on its allowed




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claim, in addition to all adequate protection payments received by the Senior Lienholder and funds

held in reserve by the Senior Lienholder. See Owens Declaration, Exhibit A, p. 1, ¶B. It is also

undisputed that the allowed secured claims as set forth in the Settlement Agreement total

approximately $12,020,000. Although the parties had stipulated in December 2012 to value the Hotel

at $12,000,000 [see Docket No. 268] to resolve a dispute over valuation (which amount is still less

than the total secured debt encumbering the Hotel), it is clear from the Debtor’s Status Report that

after extensive marketing, the Debtor is unable to identify a stalking horse bidder willing to pay an

amount sufficient to pay the Senior Lienholder’s allowed claim, let alone the secured claims held by

the Junior Lienholders. Therefore, the first prong of Section 362(d)(2) is satisfied as the Debtor does

not have any equity in the Hotel.

2. The Property Is Not Necessary For An Effective Reorganization

In order for the Debtor to enjoy the protections of the automatic stay, the Property “must be

necessary to an effective reorganization” under Section 362(d)(2)(B) of the Bankruptcy Code. To

establish this, the Debtor must show both that the Property is necessary to effect a reorganization and

also that there is a likelihood of a successful reorganization in prospect. See Timbers of Inwood

Forest Assoc., Ltd., 484 U.S. at 366-67. If no reorganization of the Debtor is in prospect, then the

protection of the automatic stay should be terminated. In re Sun Valley Newspapers, Inc., 171 B.R.

71, 75 (B.A.P. 9th Cir. 1994); In re Johnston, 31 B.R. 202, 205 (Bankr. D. Vt. 1983); In re Martin, 19

B.R. 496, 498 (Bankr. E.D. Pa. 1982).

In order to carry its burden under Section 362(d)(2)(B), the Debtor must establish that it is

moving meaningfully to propose a plan of reorganization that has a realistic chance of being

confirmed within a reasonable time. In re Holley’s, Inc., 140 B.R. 643, 702 (Bankr. W.D. Mich.

1992); In re Ashgrove Apartments of DeKalb County, Ltd., 121 B.R. 752, 756-57 (Bankr. S.D. Ohio

1990). The Debtor cannot meet its burden in this case.

Despite being in bankruptcy for more than 27 months, the Debtor has not moved

meaningfully to propose a plan of reorganization that has a realistic chance of being confirmed within

a reasonable time. Indeed, the Debtor has not complied with the terms of the Settlement Agreement

that required the Debtor to promptly file a Chapter 11 Plan. No Chapter 11 Plan has been filed, and no




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plan of reorganization is in prospect.4 In addition, the Settlement Agreement approved by the Court

provides that if a sale or refinance sufficient to pay the allowed claims held by the Senior Lienholder

by the June 30, 2014 Closing Date, the automatic stay is lifted automatically without further order of

the Court to permit the Senior Lienholder to exercise its rights and remedies under the Loan

Documents and applicable law (including the right to foreclose).

The Debtor cannot reorganize through a sale of the Property because the Debtor cannot satisfy

the requirements of either 11 U.S.C. §§ 363(f) or 363(h). The Debtor has no ability to pay the Trust in

full from a sale or refinance of the Hotel as required by § 363(f).

The Debtor has no cash or liquid assets that do not constitute the Senior Lienholder’s cash

collateral. The Debtor cannot pay the administrative costs of its Bankruptcy Case, or fund a plan of

reorganization. The Property is not necessary to an effective reorganization that is reasonably in

prospect, and stay relief is proper.

III. CONCLUSION

For the foregoing reasons, the Senior Lienholder respectfully requests the entry of an Order: (i)

granting the Motion in its entirety; (ii) terminating the automatic stay of § 362(a) of the Bankruptcy

Code with respect to the Property and otherwise vacating all bankruptcy stays and injunctions to

permit the Trust to exercise all its rights and remedies with respect to the Property and under the Loan

Documents; and (iii) granting such other and further relief as is just and appropriate under the

///

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4In its status report filed on February 20, 2014, the Debtor states that it “will file a plan of reorganization to capture the

global settlement agreement, approval of which it anticipated will be heard on April 3, 2014 at 10:30 a.m.”. RJN, Ex.




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circumstances of this Bankruptcy Case. The Senior Lienholder reserves the right to present additional

evidence in support of the Motion should the Court require an evidentiary hearing.

Dated: May 20, 2014 Respectfully submitted,

VENABLE LLP

By: /s/ Keith C. OwensKeith C. Owens

Attorneys for U.S. Bank National Association, as Trustee,successor-in-interest to Bank of America, N.A., as Trustee for the Registered Holders of Wachovia Bank CommercialMortgage Trust, Commercial Mortgage Pass-ThroughCertificates, Series 2006-C23, by and through CWCapital AssetManagement LLC, solely in its capacity as Special Servicer

8, p. 347.




This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.

June 2012 F 9013-3.1.PROOF.SERVICE

PROOF OF SERVICE OF DOCUMENT

I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business addressis 2049 Century Park East, 21st Floor, Los Angeles, CA 90067.

A true and correct copy of the foregoing document entitled: MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR RELIEF FROM AUTOMATIC STAY

will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d);and (b) in the manner stated below:

1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant tocontrolling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink

to the document. On May 20, 2014, I checked the CM/ECF docket for this bankruptcy case or adversaryproceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEFtransmission at the email addresses stated below:

Michaeline H Correa, on behalf of creditor Mehrdad [email protected], [email protected]

Craig S Ganz, on behalf of Best Western International, Inc.

[email protected]

Thomas M Geher, on behalf of Receiver Byron [email protected], [email protected];[email protected];[email protected]

Richard H Golubow, on behalf of Kay Nam Kim

[email protected], [email protected];[email protected]

Michael J Hauser, U.S. Trustee

[email protected]

Johnny Kim, on behalf of Laguna Brisas LLC

[email protected]

Miyun Lim, on behalf of interested [email protected]

Elizabeth A Lossing, on behalf of United States [email protected]

Jennifer L Nassiri, on behalf of creditor Wells Fargo Bank, N.A.

[email protected], [email protected]

Giovanni Orantes, on behalf of Laguna Brisas, [email protected], [email protected],[email protected],[email protected]






Keith C Owens, on behalf of creditor Wells Fargo Bank, N.A.


Steven G Polard, on behalf of MTB, [email protected], [email protected]

Hamid R Rafatjoo, on behalf of Wells Fargo Bank, N.A.


Jay M Ross, on behalf of creditor Mehrdad Elie [email protected], [email protected]

United States Trustee (SA) [email protected]

Service information continued on attached page.

2. SERVED BY UNITED STATES MAIL: On May 20, 2014, I served the following persons and/or entitiesat the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correctcopy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed asfollows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed.

Debtor Laguna Brisas LLC

16209 Paramount Blvd Ste 212Paramount, CA 90723

Former Counsel For Laguna Brisas, LLCM. Jonathan HayesSimon Resnik Hayes LLP15233 Ventura Boulevard, Suite 250Sherman Oaks, CA 91403







3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL(state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on May 14,2014, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those

who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will becompleted no later than 24 hours after the document is filed.

VIA MESSENGERThe Honorable Erithe A. SmithUnited States Bankruptcy Judge411 West Fourth Street, Suite 5041 / Courtroom 5ASanta Ana, CA 92701-4593


I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.

May 20, 2014 Kimberly Hoang /s/ Kimberly Hoang

Date Printed Name Signature






PARTIES SERVED BY U.S. MAIL

CREDITORS

Employment Development DeptBankruptcy Group MIC92E P,O.Box 826880

Sacramento, CA 94280-0001

Eun Jin Kim30 Country Walk Dr.Aliso Viejo, CA 92656-8070

MTB, LLCc/o Davis Wright Tremaine LLPAttn: Steven G. Polard, Esq.

865 S. Figueroa Street, Suite 2400

Los Angeles, CA 90017-2566

Assured Lender Services, Inc.

Attn: Officer /Managing General Agent2552 Walnut Ave., Suite 110

Tustin, CA 92780-6991

Esperanza Tinoco

PO Box 1963Laguna Beach, CA 92652-1963

Amenity Services

Attn: Officer / Managing General Agent110 W Dayton Street, Ste 3-201

Edmonds, WA 98020-7210

Belen Flores12500 Kensington LnGarden Grove CA 92840

BP & G LLCAttn: Officer/Managing General Agent23881 Larkwood Lane

Lake Forest, CA 92630-5137

Bank of AmericaAttn: Legal DepartmentMail Code: NCI.026-06-01

900 West Trade Street, Suite 650Charlotte, NC 28255-0001

Byron D. ChapmanRIM Hospitality

915 17th StreetModesto, CA 95354-1207

Best Western International, Inc.c/o Craig Solomon Ganz

Gallagher & Kennedy, PA2575 E. Camelback Road, Ste 1100Phoenix, Arizona 85016-9254

Bonifacio Vazquez1067 Concord St

Costa Mesa, CA 92626-2807

City of Laguna

Attn: Officer / General Managing Agent

505 Forest Ave.Laguna Beach, CA 92651-2394

Dae In Andy Kim

2063 Northam Drive

Fullerton CA 92833.5075

Edison

Attn: Manager/General

Managing AgentP.O. Box 600

Rosemead, CA 91771-0001David Scott Gaw

5227 Moya

Laguna Beach, CA 92637-1822

Cox Cable TV

Attn: Manager / General Managing Agent

29947 Avenida De Las Banderas

Rancho Santa Margarita, CA 92688-2167

Evan Beattie

2 Tyler CtIrvine CA 92602-0753

Eli Merhdad851 Burlway Road

Burlingame CA 94010-1720

Debinaire Co.Attn: Officer/General

Managing Agent339 East Blaie StCorona, CA 92879-1303

Franchise Tax BoardPO BOX 942857Sacramento, CA 95812-2952

Franchise Tax BoardBankruptcy Section MS A340PO BOX 2952

Sacramento, CA 95812-2952






GreatAmerican Leasing Corporationc/o Peggy Upton, Litigation SpecialistP 0 Box 609

Cedar Rapids, IA 52406-0609

Great American LeaseAttn: Officer or Managing General AgentP.O. Box 660831

Dallas, TX 75266-0831

Great America FinancialAttn: Officer or Managing General AgentPO Box 609

Cedar Rapids, IA 52406-0609

Kay Nam Kim13441 Aclare St

Cerritos, CA 90703-1000

Heartland FoodsAttn: Officer or Managing General Agent

1900 W. 47th Place, Ste 302Westwood, KS 66205-1868

Hill Top AlarmAttn: Officer or Managing General Agent

740 S. Van Buren, Ste BPlacentia, CA 92870-6632

Home Depot

Attn: Officer or Managing General AgentP.O. Box 6925The Lakes, NV 88901-6925

Internal Revenue Service

Attn: Bankruptcy DepartmentP.O. Box 7346Philadelphia, PA 19101-7346

JH Wells

Attn: Officer or Managing General Agent12122 Royal Birkdale, #205San Diego, CA 92128-4460

James D DeRochePerkins Coie LLP

1888 Century Park E., Ste 1700

Los Angeles, CA 90067-1721

Jose Berumen1837 S El Molino St

Alhambra, CA 91801-5612

Jose Velazquez32294 Paseo Carolina

San Juan Capistrano CA 92675-3518

KMK Attn: Officer or Managing General Agent9070 Rosecrans Ave.Bellflower, CA 90706-2038

Kay Nam Kim500 N. State College Blvd., #1200Orange, CA 92868-6611

Laguna Beach Water Attn: Officer or Managing General AgentP.O. Box 987Laguna Beach, CA 92652-0987

MTB, LLC

Attn: Officer or Managing General Agent

620 Newport Center Dr., 14th FL Newport Beach, CA 92660-8025

Maria Isabel Castro

23280 Orange Ave Ap 7

Lake Forest, CA 92630-4876

Martha Garcia

23447 Via San Gabriel

Aliso Viejo CA 92656-1117

Mehrdad Elie

c/o Jay M. Ross, Esq.

Hopkins & Carley, ALC70 S. First StreetSan Jose, CA 95113-2406

Merchant Services


6789 Quail Hill Parkway #432Irvine, CA 92603-4233

Metro Bank


9866 Garden GroveGarden Grove, CA 92844-1643

Norma Colin23445 Via San GabrielAliso Viejo, CA 92656-1117

OC PoolAttn: Officer or Managing General Agent11 Moonstone Way

Mission Viejo, CA 92692-5935

Oralia Popoca23492 Via JacintoAliso Viejo CA 92656-1157

PaetecAttn: Officer or Managing General Agent600 Willowbrook Office Par

Fairport, NY 14450-4233

ProfittimeAttn: Officer or Managing General Agent

12031 Sherman Rd North Hollywood, CA 91605-3780

Rapid PlumbingAttn: Officer or Managing General Agent

1196 N. Grove, Ste BAnaheim, CA 92806-2132

Rene Flores

1450 E Del Mar Ave., #27Orange, CA 92865-3938

Rene Flores1827 West St. Anne PlaceSanta Ana CA 92704-4742

Reyna Sotelo23498 Via JacintoAliso Viejo CA 92656-1159






Saflok Attn: Officer or Managing General Agent31750 Sherman Ave

Madison Heights, MI 48071-1423

Southern California Edison CompanyAttn: Officer or Managing General Agent1551 W San Bernardino Rd

Covina CA 91722-3407

State Board of EqualizationVan Nuys District OfficeP.O. Box 7735

Van Nuys, CA 91409-7735

Terminex


339 E Blaie StCorona, CA 92879-1303

UPS


P.O. Box 894820Los Angeles, CA 90189-4820

United States Trustee (SA)

411 W Fourth St., Suite 9041

Santa Ana, CA 92701-8000

Verizon CaliforniaAttn: Officer or Managing/General AgentP.O. Box 920041

Dallas, TX 75392-0041

Waste ManagementAttn: Officer or Managing/General Agent1800 S Grand Avenue

Santa Ana, CA 92705-4800

Wells Fargo Bank c/o James D DeRochePerkins Cole LLP

1888 Century Park E Ste 1700Los Angeles CA 90067-1721

Woo Jung II Ga

602 Shasta Dr Encinitas, CA 92024-2380
