Petition for Writ of Certiorari — Allana Baroni, Petitioner v. David Seror, Chapter 7 Trustee, et al.

Supreme Court briefSep 6, 2022

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No. 22In the

Supreme Court of the United States

ALLANA BARONI,

Petitioner,

DAVID SEROR, CHAPTER 7 TRUSTEE, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United

States Court of A ppeals for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

Richard L. A ntognini

Law Office of

Richard L. A ntognini

2485 Notre Dame Boulevard,

Suite 370 #45

Chico, CA 95928

(916) 295-4896

David G. Baker

Counsel of Record

Law Offices of David G. Baker

236 Huntington Avenue,

Room 306

Boston, MA 02115

(617) 340-3680

bostonbankruptcy@gmail.com

Counsel for Petitioner

315517

(800) 274-3321 • (800) 359-6859

QUESTION PRESENTED

11 U.S.C. § 1141 (b) provides, “Except as otherwise

provided in the plan or the order confirming the plan,

the confirmation of a plan vests all of the property of

the estate in the debtor.” No other section deals with

who has title to property in a Chapter 11 bankruptcy. It

also does not address what happens when a Chapter 11

bankruptcy is converted to a Chapter 7 bankruptcy. By

contrast, Congress said what would happen to property

when a Chapter 13 case is converted to a Chapter 7 case.

Then, property of the estate at conversion remains estate

property. 11 U.S.C. § 348 (f) (1).

The questions presented is:

Because Congress stated in clear language that a

confirmed Chapter 11 debtor retains title to property after

her plan is confirmed, did the Ninth Circuit err in reading

into section 1141 an exception no language in the statute

supported: courts could look to the Chapter 11 plan itself

to determine what happened to the debtor’s property?

PARTIES TO THE CASE

ALLANA BARONI—the debtor and appellant below.

DAVID SEROR—the Chapter 7 trustee below and

appellee.

iii

RELATED PROCEEDINGS

Baroni v. Seror, United States Court of Appeals for

the Ninth Circuit, case no. 21-60045; no judgment entered

yet.

In re Baroni, United States Bankruptcy Court for the

Central District of California, case no. 1:12-bk-10986-MB;

judgment entered March 21, 2020.

In re Baroni, United States District Court for the

Central District of California, case no. 2:20-cv-04338MWF; judgment entered January 25, 2021.

Baroni v. Seror, United States Court of Appeals

for the Ninth Circuit, case nos. 21-55076 and 21-55150;

judgment entered June 8, 2022.

In re Baroni, United States District Court for the

Central District of California, case no. 2:19-cv-07548MWF, judgment entered January 25, 2021.

TABLE OF CONTENTS

Page

QUESTION PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . i

PARTIES TO THE CASE . . . . . . . . . . . . . . . . . . . . . . . . ii

RELATED PROCEEDINGS . . . . . . . . . . . . . . . . . . . . iii

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . iv

TABLE OF APPENDICES . . . . . . . . . . . . . . . . . . . . . . . vi

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . vii

OPINIONS BELOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

RELEVANT STATUTORY PROVISIONS . . . . . . . . . . 1

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . 2

A l la na Ba ron i pu r sues Chapt er 11

reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

II. The conversion from Chapter 11 to

Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

III. The Ninth Circuit finds that the intent of

Baroni’s Chapter 11 plan controlled, rather

than the clear language of section 1141 . . . . . . . . 4

Table of Contents

Page

REASONS FOR GRANTING THE PETITION . . . . . 6

The Ninth Circuit read into section 1141(a)

an exception that was not there . . . . . . . . . . . . . . 6

II. Certiorari should be granted to ensure

a uniform rule on the status of a debtor’s

pr op e r t y when he r c a s e h a s b e en

converted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

TABLE OF APPENDICES

Page

Appendix A — opinion of the united

states court of appeals for the

ninth circuit, filed june 8, 2022 . . . . . . . 1a

A PPEN DI X B — OR DER OF T H E

UNITED STATES DISTRICT COURT

FOR T H E CEN T R A L DIST RIC T OF

CALIFORNIA, LOS ANGELES DIVISION,

DATED JANUARY 25, 2021 . . . . . . . . . . . . . . . . . . 28a

Appendix c — findings of fact of

the united states bankruptcy

court for the central district of

california, san fernando valley

division, filed march 31, 2020 . . . . . . . . . . 48a

vii

TABLE OF CITED AUTHORITIES

Page

Cases

In re Bracewell,

454 F.3d 1234 (11th Cir. 2006) . . . . . . . . . . . . . . . . . . . 8

In re Smith,

201 B.R. 267 (Bank. D. Nev. 1996) . . . . . . . . . . . . . . 10

In re Sundale, Ltd.,

471 B.R. 300 (Bank. S.D. Fla. 2012) . . . . . . . . . . . . . . 9

Lamie v. United States Trustee,

540 U.S. 526 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

NLRB v. S.W. Gen., Inc.,

137 S. Ct. 929 (2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Siegel v. Fitzgerald,

142 S. Ct. 1770 (2022) . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Statutes and Other Authorities

11 U.S.C. § 348(f)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7

11 U.S.C. § 541(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

11 U.S.C. § 1141 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 5

11 U.S.C. § 1141(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 8, 9

viii

Cited Authorities

Page

11 U.S.C. § 1141(b) . . . . . . . . . . . . . . . . . . . . . . . . . . passim

11 U.S.C. § 1141(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

28 U.S.C. § 1254(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Local Bankruptcy Rule 3020-1 . . . . . . . . . . . . . . . . . . . . 11

Local Bankruptcy Rule 3020-1(d) . . . . . . . . . . . . . . . 10, 11

OPINIONS BELOW

The opinion of the United States Court of Appeals

for the Ninth Circuit is published at 36 F.4th 958 (9th Cir.

2022). That opinion is found in the Appendix to the Petition

for a Writ of Certiorari (or “Pet. App.), at pages 2a to

27a. The opinion of the United States District Court for

the Central District of California is unpublished and is

found at Pet. App. 28a to 47a. The ruling and order of the

United States Bankruptcy Court for the Central District

of California also is unreported and is found at Pet. App.

Pages 48a to 67a.

JURISDICTION

The judgment of the court of appeals was entered on

June 8, 2022. Pet. App. 2a, 27a. Petitioner is filing this

petition for a writ of certiorari 90 days later, on September

6, 2022. This Court has jurisdiction under 28 U.S.C. §

1254 (1).

RELEVANT STATUTORY PROVISIONS

11 U.S.C. 1141 (b) states:

(b) Except as otherwise provided in the plan or

the order confirming the plan, the confirmation

of a plan vests all of the property of the estate

in the debtor.

11 U.S.C. § 348 (f) (1) provides:

Except as provided in paragraph (2), when a

case under chapter 13 of this title is converted

to a case under another chapter under this title-

(A) Property of the estate in the converted case

shall consist of property of the estate, as of

the date of filing the petition, that remains

in the possess of or is under the control of

the debtor on the date of conversion….

INTRODUCTION

This is a case about choices, specifically the choices

Congress makes when it legislates. Although Congress

has spoken on what happens the debtor’s property when a

Chapter 13 case is converted to Chapter 7, it did not enact

the same statute to govern Chapter 11 cases Instead, it

made a different choice-conversion of a Chapter 11 case to

Chapter 7 would have no effect on who owned the debtor’s

property. The property would still be vested in the debtor.

The Ninth Circuit did not agree and created an

exception that Congress did not intend to legislate. This

Court should grant certiorari to correct this mistaken

interpretation of a clear statute and impose a uniform

rule to govern what happens to property upon conversion

of a Chapter 11 case.

STATEMENT OF THE CASE

Allana Baroni pursues Chapter 11 reorganization.

Allana Baroni owned her home and several rental

properties with her husband James. Each property had

a loan with a deed of trust. Pet. App. 3a-4a.

Baroni filed for Chapter 13 bankruptcy in 2012 and

then converted her case to Chapter 11. Pet. App. 3a. She

presented a Chapter 11 plan that would allow her to pay

her primary residence mortgage payments and to rent the

properties and make loan payments into reserve accounts

during the pendency of any outstanding adversary

proceedings. Pet. App. 4a. She and her husband would

continue to own the properties. Ibid. The bankruptcy

court approved the plan. Ibid.

The plan also allowed Baroni to file adversary

complaints against her alleged creditors, challenging the

creditor’s claims to own her loans. Pet. App. 4a-5a.

II. The conversion from Chapter 11 to Chapter 7.

The Bank of New York Mellon (BONYM) demanded

that Baroni pay its claim as the plan required. Pet. App.

5a. But the amount of BONYM’s claim had changed

when BONYM submitted 1099-C forms to the IRS which

indicated it had forgiven $611,954.24 of the debt pursuant

to the cram down provision of the plan. Ibid. Baroni

only learned of the forms 1099-C when the IRS audited

Baroni and demanded she pay income on BONYM’s debt

forgiveness, meaning Baroni would have to pay the claim

amount plus income tax on the 1099-C amounts. Ibid.

BONYM moved to dismiss the bankruptcy or convert it

to Chapter 7. Pet. App. 6a.

The bankruptcy court granted the motion, and a

Chapter 7 trustee was appointed. Pet. App. 7a. The

Chapter 7 trustee demanded that Baroni turn over the

rental properties, rental income, reserve account amounts

and sales proceeds from one of the properties. Ibid. The

bankruptcy court granted that motion. Pet. App. 7a-8a.

On appeal, the District Court affirmed. Pet. App.

29a. It did not rely on the language of section 1141. Pet.

App. 42a-46a. Instead, it turned to a local rule of the

bankruptcy court. Pet. App. 42a. The version of the local

rule that the Bankruptcy Court relied upon held that

every order approving a chapter 11 plan must include

specific language of what happens to the debtor’s property

if the case is converted to Chapter 7. Ibid. Further, if a

Chapter 11 plan did not address what would happen with

the debtor’s property upon conversion to Chapter 7, the

property would be property of the bankruptcy estate,

subject to control by a Chapter 7 trustee. Pet. App.

45a-46a. However, the 2019 version of the local rule the

Bankruptcy Court relied upon was not in effect in 2013

when Baroni’s plan was approved.

III. The Ninth Circuit finds that the intent of Baroni’s

Chapter 11 plan controlled, rather than the clear

language of section 1141.

Baroni appealed the turnover order to the Ninth

Circuit. That court upheld the order. Pet. App. 3a

The panel held that it was filling a gap in the

bankruptcy statutes. It noted the “Bankruptcy Code is

silent as to what constitutes the bankruptcy estate when a

Chapter 11 plan case is converted to Chapter 7 after plan

confirmation.” Pet. App. 21a It stressed that Congress had

been silent on the issue. Ibid.

The Ninth Circuit should have stopped there by ruling

the plain language of section 1141 still applied—once a

plan is confirmed, all property revested in the debtor.

It did not matter whether case was later converted to

Chapter 7.

The panel admitted that 11 U.S.C. § 1141 vested title

to property in the debtor. Pet. App. 22a. But it wrote the

vesting provisions of section 1141 were “explicitly subject

to the provisions of the plan.” Pet. App. 22a. It then

attempted to discern how the plan would treat property

if the Chapter 11 case were converted to Chapter 7. Pet.

App. 24a-25a.

To the panel, the “central question is whether the

Plan’s ‘language, purposes, and context’ changed the

effect of the general vesting provisions in 11 U.S.C § 1141

after conversion to Chapter 7.” Pet. App. 24a. The panel

thought the plan was to benefit creditors. It provided

Baroni was to use the rental income from the properties

to pay into reserve accounts, which she then would pay

to her creditors. Pet. App. 25a-26a. As the panel wrote,

“Instead, the income from the properties remained subject

to the Plan because the premise of the plan was to pay

creditors with the ongoing income stream form the rental

properties.” Pet. App. 26a.

However, while the plan required Baroni to pay the

plan amounts, it does not specify that the rents are to be

used for that purpose. Pet. App. 26a-27a. According to the

District Court on appeal, the purpose of the plan was also

for Baroni to keep her primary residence and the rental

properties. Pet. App. 39a-40a.

The panel disregarded the District Court’s ruling that

the purpose of the plan was for Baroni to keep her primary

residence and the rental properties Pet. App. 25a-26a.

Instead, it held that the main intent of the Chapter 11

plan was to pay Baroni’s creditors, and ruled the rental

income was property of the bankruptcy estate. Pet. App.

26a. Those amounts would be seized by the Chapter 7

trustee and then given to Baroni’s secured creditors.

The panel noted, “To hold that the unadministered rent

and sales proceed did not revest in the bankruptcy estate

upon conversion to Chapter 7 would frustrate the intent

of the Plan and is contrary to many of its provisions.” Pet.

App. 27a.

Baroni did not file a petition for rehearing. Pet. App.

27a.

REASONS FOR GRANTING THE PETITION

The Ninth Circuit read into section 1141 (a) an

exception that was not there.

When a debtor files for bankruptcy, the filing creates a

bankruptcy estate. 11 U.S.C. § 541 (a) (1). Under Chapter

11, the confirmation of a plan vests all property of the

estate in the debtor. 11 U.S.C. § 1141 (b) (c). Here, the

bankruptcy court confirmed the debtor’s Chapter 11 plan,

which vested all property in her. Pet. App. 3a-4a.

Bankruptcy cases often are converted from one

chapter to another. Chapter 13 cases are converted to

Chapter 7, and Chapter 11 cases are converted to Chapter

7. Allana Baroni’s case was converted to Chapter 7 because

the bankruptcy court found she had committed a material

default of her plan when she questioned the effect of the

IRS forms 1099-C on the amount of BONYM’s claim. Pet.

App. 4a-5a.

What happens to the debtor’s property when her

case is converted from one chapter to another? Congress

provided two answers to that question. When a Chapter

13 case is converted to Chapter 7, Congress dictated

that a debtor’s property would become property of the

bankruptcy estate, subject to control by a Chapter 7

trustee. Congress made this choice clear in 11 U.S.C.

§ 348 (f) (1): “[P]roperty of the estate in the converted

case shall consist of property of the estate, as of the date

of filing the petition, that remains in the possess of or is

under the control of the debtor….”

Congress made a different choice when a Chapter 11

case is converted to Chapter 7. Then, the debtor retains

title to the property. 11 U.S.C. § 1141 (b) states that choice:

“Except as otherwise provided in the plan or the order

confirming the plan, the confirmation of a plan vests all

of the property of the estate in the debtor.”

This statute contains no exceptions except for

language in the Chapter 11 plan or the order confirming

the plan. It does not say that vesting the property in the

debtor is temporary; it is permanent once the Chapter 11

plan is confirmed. It does not contain an exception to that

rule, such as the statutory exception in Chapter 13 cases

under section 348 (f) (1). Congress made its choice—once a

Chapter 11 plan is confirmed, property vests in the debtor,

even if the case is converted.

This Court stresses that statutory interpretation

follows two principles. First, judges must apply clear

statutory language as it is written. “Where the statute’s

language is plain, the sole function of the courts is … to

enforce it according to its terms.” Lamie v. United States

Trustee, 540 U.S. 526, 534 (2004). Second, courts cannot

read into statutes exceptions that are just not there.

NLRB v. S.W. Gen., Inc., 137 S.Ct. 929, 939 (2017). Courts

have no business rewriting statutes. “The Supreme Court

and this Court have warned on countless occasions against

judges ‘improving’ plain statutory language in order to

better carry out what they perceive to be the legislative

purpose.” In re Bracewell, 454 F.3d 1234, 1240 (11th Cir.

2006).

The Ninth Circuit disregarded Congress’ decision. In

plain language, Congress dictated that the confirmation

of a Chapter 11 plan vested all property with the debtor.

It said nothing about what might happen if a case were

converted. The lower court should have followed this clear

language as written and concluded that Baroni, the debtor,

retained title to all her property despite the conversion of

her case to Chapter 7.

Instead of following the plain language of section

1141 (a), the Ninth Circuit decided to change it. It held,

contrary to the statute, that a court should look to the

intent of the Chapter 11 plan when deciding who has

title to a debtor’s property. Pet. App. 24a-25a. As the

Ninth Circuit recognized, the statute had no language

justifying such an exception. Pet. App. 21a. The lower

court thought Congress had been silent on a possible

exception: “Given Congress’s silence, courts have varied

in their approach to what happens with the bankruptcy

estate upon conversion….” Pet. App. 22a.

But Congress was not silent. It spoke loudly and

clearly in section 1141 (b). A debtor’s property remained

vested with the debtor once a court confirmed the Chapter

11 plan. The statute contained no exception for conversion

to another Chapter because Congress chose not to make

such an exception. The Ninth Circuit went beyond its role

in finding and then applying an exception.

This Court should grant certiorari to correct the

Ninth Circuit’s egregious interpretation of section 1141 (b)

and to make clear to the lower courts there is one proper

construction of the statute.

II. Certiorari should be granted to ensure a uniform

rule on the status of a debtor’s property when her

case has been converted.

This Court recently stressed that rules in bankruptcy

cases must be uniform. Siegel v. Fitzgerald, 142 S.Ct. 1770,

1781-1782 (2022). The Ninth Circuit’s decision threatens

uniformity in several ways.

First, the Ninth Circuit opinion is the first circuit

court decision to consider the question of what happens to

a debtor’s property when a case is converted from Chapter

11 to Chapter 7. As the first such case from an appellate

court, it will tempt other appellate courts to follow it. This

Court must step in to prevent the spread of the Ninth

Circuit’s erroneous interpretation of section 1141 (b).

Second, although other appellate courts have not

yet considered the issue the Ninth Circuit faced, the

bankruptcy courts have, with much disagreement. One

line of bankruptcy court cases hold section 1141 (a) should

be applied according to its plain language. Thus, these

courts have ruled that the conversion of a Chapter 11

case to Chapter 7 means property remains vested with

the debtor. See, e.g., In re Sundale, Ltd., 471 B.R. 300,

306 (Bank. S.D. Fla. 2012): [In] the absence of an express

provision in the plan or confirmation order to the contrary,

upon conversion, assets that vested in the reorganized

debtor…do not revest in the estate to be administered by

the Chapter 7 trustee.”

Another line of cases disagrees and finds that a

conversion to Chapter 7 vests the debtor’s property in

the bankruptcy estate, with control held by the Chapter

7 trustee. See, e.g., In re Smith, 201 B.R. 267, 270 (Bank.

D. Nev. 1996). Here, the Ninth Circuit found a conflict

among the lower courts on the issue and took one side in

that conflict. “[C]ourts have varied in their approach to

what happens with the bankruptcy estate upon conversion

from Chapter 11 to Chapter 7.” Pet. App. 22a.

This variety of approaches threatens confusion in

the lower courts and the uniformity in bankruptcy laws

imposed by the Constitution and this Court.

Finally, the lack of controlling case law may induce

some bankruptcy courts to adopt “creative” solutions.

These solutions may contravene the statutes Congress

enacted. For example, as the District Court noted in this

case, Pet. App. 42a-43a, the bankruptcy judges for the

Central District of California wrote a rule that tried to “fill

in the gaps” Congress supposedly left in section 1141 (b).

Under Local Bankruptcy Rule 3020-1 (d), which was not

in effect when the bankruptcy court confirmed Baroni’s

Chapter 11 plan in 2013,

[U]nless otherwise provided in the plan, if the

case is converted to one under chapter 7, the

property of the reorganized debtor . . . that

has not been distributed under the plan shall

be vested in the chapter 7 estate, except for

property that would have been excluded from

the estate if this case had always been one

under chapter 7.

The danger this local rule creates is that other

bankruptcy courts may choose a different rule or no rule.

Or, as in Baroni’s case, courts may rely on the wrong rule,

as the District Court did in affirming the bankruptcy

court. Pet. App. 42a-43a. The bankruptcy court used the

2019 version Local Bankruptcy Rule 3020-1 (d). It stressed

that unless Baroni lodged an order that addressed what

would happen to property if the case was converted to

Chapter 7, the local rule would mandate the property

belonged to the bankruptcy estate. Pet. App. 45a-46a.

In turn, the District Court relied on this supposed

local rule to say that because Baroni did not submit an

order vesting property in her, she was stuck with the

presumption under the rule that her property became

property of the estate. Pet. App. 45a-46a. But the 2013

version of Local Rule 3020-1, in effect when the plan was

approved, did not contain this language. Subdivision (d)

of the 2013 rule dealt with final decrees, not vesting of

property. Subdivision (b) concerned status reports on

steps taken to implement the Chapter 11 plan. There was

no presumption that the debtor’s property vested in the

bankruptcy estate.

This confusion points out the dangers of allowing

local bankruptcy rules to override clear statutes. Again,

uniform bankruptcy rules will be threatened. Certiorari

should be granted to eliminate this possibility.

CONCLUSION

For these reasons, appellant and debtor ALLANA

BARONI respectfully requests that the Court grant her

petition for a writ of certiorari.

Respectfully submitted,

Richard L. A ntognini

David G. Baker

Law Office of

Counsel of Record

Richard L. A ntognini

Law Offices of David G. Baker

2485 Notre Dame Boulevard, 236 Huntington Avenue,

Suite 370 #45

Room 306

Chico, CA 95928

Boston, MA 02115

(916) 295-4896

(617) 340-3680

bostonbankruptcy@gmail.com

Counsel for Petitioner

APPENDIX

Appendix A — Appendix

opinionAof the united

states court of appeals for the ninth

circuit, filed june 8, 2022

United States Court of Appeals

for the Ninth Circuit

No. 21-55076, No. 21-55150

IN RE ALLANA BARONI,

Debtor,

ALLANA BARONI,

Appellant,

DAVID SEROR, Chapter 7 Trustee,

Appellee.

ALLANA BARONI,

Appellant,

DAVID SEROR, Chapter 7 Trustee; BANK

OF NEW YORK MELLON; WELLS FARGO

BANK, N.A., as Trustee for Structured

Adjustable Rate Mortgage Loan Trust

Appendix A

Mortgage Pass-Through Certificates,

Series 2005-17,

Appellees,

NATIONSTAR MORTGAGE LLC,

Movant.

Appeal from the United States District Court for the

Central District of California. D.C. No. 2:20-cv-04338MWF, D.C. No. 2:19-cv-07548-MWF. Michael W.

Fitzgerald, District Judge, Presiding.

December 7, 2021, Argued and Submitted,

Pasadena, California

June 8, 2022, Filed

Before: Paul J. Kelly, Jr.,* Milan D. Smith, Jr., and

Danielle J. Forrest, Circuit Judges.

Opinion by Judge Forrest

OPINION

FORREST, Circuit Judge:

* The Honorable Paul J. Kelly, Jr., United States Circuit

Judge for the U.S. Court of Appeals for the Tenth Circuit, sitting

by designation.

Appendix A

Appellant Allana Baroni defaulted under her Chapter

11 bankruptcy plan by refusing to pay Appellee Bank

of New York Mellon1 (Bank of NYM) after she lost her

adversary proceeding challenging the bank’s secured

claim. This was not the first time that Baroni had refused

to pay a secured creditor as required under her plan. As

a result, the bankruptcy court granted Bank of NYM’s

motion to convert the bankruptcy case from Chapter 11 to

Chapter 7 and ordered Baroni to turn over undistributed

assets in her possession to the Chapter 7 bankruptcy

estate. Baroni challenged these two decisions in separate

appeals. We have jurisdiction under 28 U.S.C. § 158(d),

and we affirm both orders.

I. BACKGROUND

A. Baroni files for bankruptcy

Baroni filed for bankruptcy after defaulting on

several mortgage loans that she received to purchase

rental properties. She initially filed under Chapter 13,

but her case was converted to Chapter 11. Bank of NYM

and Wells Fargo, 2 which is not a party in these appeals,

filed several proofs of claim asserting secured claims

1. Bank of NYM’s full name of record is “The Bank of New

York Mellon f/k/a The Bank of New York, as Successor Trustee to

JP Morgan Chase Bank, N.A., as Trustee for the Holders of SAMI

II Trust 2006-AR6, Mortgage Pass Through Certificates, Series

2006-AR6.”

2. Wells Fargo’s full name is “Wells Fargo Bank, N.A. As

Trustee For Structured Adjustable Rate Mortgage Loan Trust

Mortgage Pass-Through Certificates, Series 2005-17.”

Appendix A

based on the deeds of trust that Baroni signed. Baroni

disputed these secured claims asserting that Bank of

NYM and Wells Fargo were not authorized to enforce

her loan obligations for various reasons. Consequently,

she proposed a Chapter 11 plan (Plan) that would allow

her to continue renting the properties and to make her

loan payments into separate Reserve Accounts while she

pursued adversary proceedings against Bank of NYM and

Wells Fargo. Under the terms of her Plan, if her challenges

failed and these creditors’ secured claims were allowed,

she was required to transfer the funds held in the relevant

Reserve Account “within 10 business days of entry of an

order identifying the allowed claim holder” and to make

all future loan payments directly to the lender. But if a

lender’s claim was disallowed, the relevant reserve funds

would revert to Baroni. The bankruptcy court confirmed

Baroni’s proposed Chapter 11 Plan over objection from

creditors.

B. Baroni challenges Bank of NYM’s

secured claim

Baroni began making her installment payments into

the Reserve Accounts and initiated adversary proceedings

against Bank of NYM and Wells Fargo challenging

their secured claims. Three years later, Baroni lost

her challenge against Wells Fargo. That is when the

trouble that led to this litigation started. Despite the

Plan requirement that she transfer to Wells Fargo the

funds in the Reserve Account associated with its loan and

start making her loan payments directly to Wells Fargo,

she refused. In response, Wells Fargo moved to convert

Appendix A

Baroni’s bankruptcy case to Chapter 7 so that a trustee

would be appointed to preserve and administer the estate

and ensure ongoing payments were made. After several

hearings, Baroni ultimately paid Wells Fargo as required,

and the bankruptcy court denied Wells Fargo’s conversion

motion as moot.

A year later, Baroni also lost her adversary proceeding

against Bank of NYM when the bankruptcy court

determined that Bank of NYM was the holder of Baroni’s

promissory note and was authorized to enforce her loan

contract. Once again, Baroni refused to transfer the

reserve funds to Bank of NYM or to start making loan

payments directly to the bank.

As justification for her refusal to comply with the

Plan, Baroni stated that she and her husband had each

received a 1099-C from the Internal Revenue Service

(IRS) indicating that a company named Specialized Loan

Services had written off $305,977.12 of the subject loan

balance. Baroni contends that because both her and her

husband received a 1099-C, her loan was reduced by

a total of $611,954.24 and that Bank of NYM had not

properly calculated her remaining balance. She demanded

that Bank of NYM explain the impact of the write-off

before she would transfer the Reserve Account funds.

After making multiple requests for Baroni to provide

a copy of the 1099-Cs, Bank of NYM explained that

only $305,977.12 was written off the loan balance after

part of the balance was rendered unsecured under the

bankruptcy Plan, and the bank continued to insist that

Baroni transfer the Reserve Account funds. Baroni did

Appendix A

not accept this explanation and refused to make payment

until the 1099-C issue was “resolved.”

C. Bank of NYM moves to convert to Chapter 7

After a few months of back and forth without resolution,

Bank of NYM filed its own conversion motion asking for

Baroni’s case to be converted to Chapter 7. This motion

was filed approximately six months after the Plan required

Baroni to transfer the reserve funds to Bank of NYM. The

bankruptcy court held a hearing and granted this motion,

concluding that Baroni had materially defaulted under the

Plan by refusing to transfer the reserve funds to Bank

of NYM and by not making her ongoing loan payments

directly to the bank.

Baroni moved for reconsideration arguing that she

could cure her default immediately. She also argued for

the first time that Bank of NYM failed to give proper

notice of its conversion motion to all creditors. The

bankruptcy court denied her motion for reconsideration.

Baroni appealed to the district court, which affirmed the

bankruptcy court.

D. Baroni refuses to turn over assets to the

bankruptcy estate

After Baroni’s case was converted to Chapter 7, the

Chapter 7 Trustee requested that Baroni transfer all

Reserve Account funds to the bankruptcy estate. The

Trustee also requested turnover of the sale proceeds from

the rental property for which Wells Fargo had submitted

Appendix A

a secured claim and the rental proceeds from the rental

property for which Bank of NYM submitted a secured

claim. Baroni transferred the Reserve Account funds

(while also protesting that the funds were not part of

the Chapter 7 estate) but refused to transfer the rental

and sale proceeds, arguing that they were not part of the

bankruptcy estate because these assets revested in her

when her Chapter 11 Plan was confirmed. The Trustee

filed a motion for turnover of these assets.

The bankruptcy court determined that neither

the Plan nor the Bankruptcy Code addressed what

would happen to the assets of the Chapter 11 estate

upon conversion to Chapter 7 after plan confirmation.

Therefore, the bankruptcy court held that the Local

Bankruptcy Rules for the Central District of California

applied by default, which provided that unadministered

assets revert to the bankruptcy estate upon conversion

unless the plan provides otherwise.

The bankruptcy court also rejected Baroni’s argument

that the sale and rental proceeds were not property of the

bankruptcy estate under our caselaw. Specifically, the

bankruptcy court held that Pioneer Liquidating Corp.

v. United States Trustee (In re Consol. Pioneer Mortg.

Entities), 264 F.3d 803 (9th Cir. 2001), established that

unadministered property of a confirmed Chapter 11 plan

revests in the Chapter 7 estate upon conversion if (1) the

“plan provides for the distribution of future proceeds of an

asset to creditors” and (2) “the bankruptcy court retains

broad powers to supervise the implementation of the plan.”

The bankruptcy court found that the Plan contemplated

Appendix A

Baroni would pay future rent proceeds to her creditors and

required the bankruptcy court to oversee implementation

of its provisions. Consequently, it held that the assets

passed into the Chapter 7 estate upon conversion.

On appeal, the district court disagreed with the

bankruptcy court’s analysis of Pioneer but affirmed its

decision requiring Baroni to turn over the subject assets

to the Chapter 7 estate under Local Rule 3020-1.

II. DISCUSSION

“We independently review the bankruptcy court’s

decision and do not give deference to the district court’s

determinations.” Saxman v. Educ. Credit Mgmt. Corp. (In

re Saxman), 325 F.3d 1168, 1172 (9th Cir. 2003) (citation

omitted). We review the bankruptcy court’s conclusions of

law de novo, and its findings of fact for clear error. Nichols

v. Birdsell, 491 F.3d 987, 989 (9th Cir. 2007).

As previously stated, Baroni filed two separate

appeals. One challenging the bankruptcy court’s order

converting her Chapter 11 case into Chapter 7 for

materially defaulting on the confirmed Chapter 11 plan

(conversion appeal). And one challenging the bankruptcy

court’s order requiring that she turn over assets in her

possession to the Chapter 7 Trustee so that they become

part of the bankruptcy estate (turnover appeal). As these

issues relate to each other, we address them together,

analyzing the conversion order first and then the turnover

order.

Appendix A

A. Chapter 7 Conversion

“The decision to convert [a] case to Chapter 7 is

within the bankruptcy court’s discretion.” Pioneer, 264

F.3d at 806. We will reverse the bankruptcy court only

if its decision was “based on an erroneous conclusion of

law or when the record contains no evidence on which

[the bankruptcy court] rationally could have based [its]

decision.” Id. at 806-07 (first alteration in original)

(quoting Benedor Corp. v. Conejo Enters., Inc. (In re

Conejo Enters., Inc.), 96 F.3d 346, 351 (9th Cir. 1996)).

The standard for converting a Chapter 11 case to

Chapter 7 is set out in 11 U.S.C. § 1112. This statute

provides that the bankruptcy court “shall convert a case

under this chapter to a case under chapter 7 or dismiss a

case under this chapter, whichever is in the best interests

of creditors and the estate, for cause.” 11 U.S.C. § 1112(b)

(1). However, even if cause is established, Section 1112(b)

(2) prohibits a bankruptcy court from granting relief

under Section 1112(b)(1) if the bankruptcy “court finds and

specifically identifies unusual circumstances establishing

that converting or dismissing the case is not in the best

interests of creditors and the estate, and the debtor

or any other party in interest establishes [one of two

enumerated circumstances].” Id. § 1112(b)(2) (emphasis

added). Thus, depending on the arguments advanced by

the parties, there are three primary inquiries: (1) whether

cause exists for granting relief under Section 1112(b)(1);

(2) whether granting relief is in the creditors’ and the

estate’s best interests; and (3) if so, which form of relief

best serves the creditors’ and the estate’s interests. We

address each in turn.

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1. Cause

We first address where the burden for establishing

cause lies. Although the Ninth Circuit Bankruptcy

Appellate Panel (BAP) has addressed this issue, Sullivan

v. Harnisch (In re Sullivan), 522 B.R. 604, 614 (B.A.P. 9th

Cir. 2014) (“The movant bears the burden of establishing

by a preponderance of the evidence that cause exists.”),

we have not. The parties here do not dispute that Bank of

NYM, as the party seeking conversion, has the burden of

establishing cause for granting conversion. And there is

significant authority supporting this view. See, e.g., Loop

Corp. v. U.S. Tr., 379 F.3d 511, 517-18 (8th Cir. 2004); In re

Woodbrook Assocs., 19 F.3d 312, 317 (7th Cir. 1994); In re

Sullivan, 522 B.R. at 614; In re Rosenblum, 609 B.R. 854,

863 (Bankr. D. Nev. 2019); 7 A lan J. Resnick & Henry

J. Sommer, Collier on Bankruptcy ¶ 1112.04[4] (16th ed.

2012) [hereinafter Collier on Bankruptcy]. We take this

opportunity to likewise establish that the party seeking

relief under Section 1112(b)(1) has the initial burden of

persuasion to establish that cause exists for granting

such relief. Establishing cause is not definitive, of course,

because the statute makes clear that even where cause

is established, the bankruptcy court must still consider

the best interests of creditors and the estate. 11 U.S.C.

§ 1112(b). It is also well established that bankruptcy courts

have broad discretion in deciding whether to grant relief

under Section 1112(b)(1), even where cause is established.

Pioneer, 264 F.3d at 806-07.

We now turn to whether cause was shown in this case.

“Cause” is a defined term, and it includes a “material

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default by the debtor with respect to a confirmed plan.” 11

U.S.C. § 1112(b)(4)(N). The statute does not further define

what constitutes a “material default,” and we have not

previously construed this term in the context of Section

1112(b). The Sixth Circuit has held that “[a] failure to make

a payment required under the plan is a material default

and is cause for dismissal.” AMC Mortg. Co. v. Tenn. Dep’t

of Rev. (In re AMC Mortg. Co., Inc.), 213 F.3d 917, 921 (6th

Cir. 2000); see also Collier on Bankruptcy ¶ 1112.04[6][n]

(“Although the Code does not define the term material,

the failure to make payments when due under the plan

can constitute a material default.”).

Bankruptcy courts in the Ninth Circuit have followed

this rule. See, e.g., Kenny G Enters., LLC v. Casey (In re

Kenny G Enters., LLC), No. BAP CC-13-1527, 2014 Bankr.

LEXIS 3529, 2014 WL 4100429, at *13-14 (B.A.P. 9th Cir.

Aug. 20, 2014) (unpublished) (holding that a “failure to pay

creditors pursuant to the Plan certainly was” a material

default constituting cause for conversion); Warren v.

Young (In re Warren), No. BAP EC-14-1390, 2015 Bankr.

LEXIS 1775, 2015 WL 3407244, at *5 (B.A.P. 9th Cir. May

28, 2015) (unpublished) (holding that “failure to make

any payments to several unsecured creditors for more

than four years in contravention of the Plan amounted

to a material default and constituted cause to convert or

dismiss the bankruptcy case”); In re Red Door Lounge,

Inc., 559 B.R. 728, 733 (Bankr. D. Mont. 2016) (failure to

make monthly loan payments and pay property taxes was

material default); cf. Pryor v. U.S. Tr. (In re Pryor), No.

15-BK-19998, 2016 Bankr. LEXIS 4020, 2016 WL 6835372,

at *8-9 (B.A.P. 9th Cir. Nov. 18, 2016) (unpublished) (failure

12a

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to make required quarterly fee payments to trustee was

“cause for dismissal or conversion”). We agree with this

view in principle.

One of the primary purposes of Chapter 11 is to

allow a debtor facing financial hardships to continue

business operations so that it “may be restructured to

enable it to operate successfully in the future” because

the business may be “more valuable” as a going concern

than if it were liquidated. U.S. v. Whiting Pools, Inc., 462

U.S. 198, 203, 103 S. Ct. 2309, 76 L. Ed. 2d 515 (1983).

This purpose is reflected in Baroni’s confirmed Plan that

sought to restructure the debt underlying her troubled

rental properties. And given the substantial effect that

a confirmed Chapter 11 plan may have on creditors, an

individual debtor generally may not receive a discharge

under Chapter 11—even after a plan is confirmed—until

the debtor has made all creditor payments contemplated

in the confirmed Chapter 11 plan. 11 U.S.C. § 1141(d)

(5)(A). Ensuring that payments to creditors are made

is essential to effectuating the reorganization plan and

accomplishing Chapter 11’s policy objectives. Thus, we

agree that failing to make required plan payments can

be a material default of the plan, even if the debtor has

made payments for an extended period before the default

or taken other significant steps to perform the plan. See

Greenfield Drive Storage Park v. Cal. Para-Professional

Servs., Inc. (In re Greenfield Drive Storage Park), 207

B.R. 913, 916-17 (B.A.P. 9th Cir. 1997) (finding material

default where debtor ceased making plan payments after

doing so for several years and rejecting debtor’s argument

that “there could be no material default because there was

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a ‘substantial consummation’ under the plan”); see also

Warren, 2015 Bankr. LEXIS 1775, 2015 WL 3407244, at

*3, *5 (finding material default where debtors paid some

but not all creditors and rejecting debtors’ argument that

they had “substantially complied with the payment terms

of the Plan”); Collier on Bankruptcy ¶ 1112.04[6][n] (“[A]

default may occur long after the plan becomes effective

and long after substantial consummation.”).

However, that does not mean that every missed

payment is a material default. There can be situations,

for example, where the defaulted payment or the period

of default is so minimal in context that it cannot fairly

be characterized as a material default. As a general

matter, “material” means something that is “significant”

or “essential.” BLACK’S LAW DICTIONARY (11th ed.

2019). Furthermore, a Chapter 11 plan is “construed

basically as a contract.” Hillis Motors, Inc. v. Haw. Auto.

Dealers’ Ass’n, 997 F.2d 581, 588 (9th Cir. 1993). And

under general contract principles, whether a breach is

material depends on the “extent” of the deprivation from

the benefit reasonably expected. Restatement (Second)

of Contracts § 241 (Am. L. Inst. 1981). Therefore, factors

relevant to determining whether missed payments are a

material default of the plan include the number of missed

payments, the number of aggrieved creditors, and how

long the default occurred.

Here, Baroni’s Plan required that if Bank of NYM’s

secured claim was allowed, she transfer the funds that she

paid into the Reserve Account to Bank of NYM. The Plan

also required that she start making her outstanding loan

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Appendix A

payments directly to Bank of NYM. As the bankruptcy

court found, Baroni’s payment obligations to Bank of

NYM were triggered under the Plan, at the latest, when

Baroni exhausted her appellate remedies in her adversary

proceeding. This means that when the bankruptcy court

granted conversion, Baroni had been in default under

the Plan for at least six months with a past due amount

of “at least $200,000, if not more.” This balance did not

represent a single payment; it included five years’ worth

of installment payments paid into the Reserve Account,

of which Bank of NYM had yet to see a dollar.

Baroni does not dispute that she failed to pay Bank of

NYM as required under the Plan, but she argues that her

failures were not “material” because she had “otherwise

fully executed and performed [the] Plan” by making

payments to other creditors and making payments into

the Reserve Accounts while her adversary proceeding was

pending. The bankruptcy court rejected this argument,

and so do we. Even though Baroni properly performed

other obligations imposed by the Plan, she defaulted on her

obligations related to Bank of NYM’s secured claim. And

both the amount and the length of time of this default were

significant. Therefore, we conclude that the bankruptcy

court did not err in finding cause for conversion in this

case.

2. Best Interests of the Creditors and the Estate

Before the bankruptcy court can grant conversion,

it must consider whether this relief, as opposed to some

other remedy, is in best interests of the creditors and the

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estate. 11 U.S.C. § 1112(b)(1). And when raised, it must also

consider whether there are unusual circumstances that

indicate that the creditors’ and the estate’s interests are

best served by not granting relief under Section 1112(b)

and allowing the Chapter 11 proceeding to continue. Id.

§ 1112(b)(2). In analyzing these issues, the bankruptcy

court “must consider the interests of all of the creditors.”

Shulkin Hutton, Inc., P.S. v. Treiger (In re Owens), 552

F.3d 958, 961 (9th Cir. 2009) (citation omitted). Baroni has

argued that there are unusual circumstances counseling

against awarding Section 1112(b) relief. Therefore, we

address that question first and then we address whether

the form of relief the bankruptcy court granted was within

its discretion.

Is any relief warranted?

The bankruptcy court may not grant relief if it

“finds and specifically identifies unusual circumstances”

establishing that granting Section 1112(b) relief “is not in

the best interests of the creditors and the estate” and that

the debtor’s conduct triggering the request for relief was

reasonably justified and curable within a reasonable time.

11 U.S.C. § 1112(b)(2). The BAP has reasoned that the

term “unusual circumstance” “contemplates conditions

that are not common in chapter 11 cases.” Mahmood v.

Khatib (In re Mahmood), No. 15-BK-25281, 2017 Bankr.

LEXIS 724, 2017 WL 1032569, at *8 (B.A.P. 9th Cir.

Mar. 17, 2017) (unpublished) (quoting In re Prod. Int’l

Co., 395 B.R. 101, 109 (Bankr. D. Ariz. 2008)); see also

Collier on Bankruptcy ¶ 1112.05[2] (“[T]he word ‘unusual’

contemplates facts that are not common to chapter 11

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cases generally.”). Accordingly, courts have held that

difficulty making plan payments, disputes regarding the

validity and amounts of claims, and other similar issues

are not “unusual circumstances.” E.g., In re Mahmood,

2017 Bankr. LEXIS 724, 2017 WL 1032569, at *8

(“[D]isputes over liens and their respective priority are

not ‘unusual circumstances.’”); Green v. Howard Fam.

Tr. (In re Green), No. BR 14-15981-ABL, 2016 Bankr.

LEXIS 3963, 2016 WL 6699311, at *10-11 (B.A.P. 9th

Cir. Nov. 9, 2016) (unpublished) (concluding existence of

default judgment and “pending dischargeability actions

or claim objections” are not unusual circumstances); In

re Wallace, No. 09-20496-TLM, 2010 Bankr. LEXIS 261,

2010 WL 378351, at *7 (Bankr. D. Idaho Jan. 26, 2010)

(unreported) (a “contentious dispute over a creditor’s claim

is not an unusual circumstance in a chapter 11 case”); see

also In re Fisher, No. 07-61338-11, 2008 Bankr. LEXIS

1247, 2008 WL 1775123, at *5 (Bankr. D. Mont. Apr. 15,

2008) (unreported) (unusual circumstances are those that

“demonstrate that the purposes of [C]hapter 11 would be

better served by maintaining the case as a chapter 11

proceeding”).

Conversely, cou r t s have found that unusua l

circumstances counseling against granting relief exist

where continuing the case in Chapter 11 will likely yield

a higher recovery for creditors without the usual risks

of failure associated with a Chapter 11 plan. See, e.g.,

In re Orbit Petroleum, Inc., 395 B.R. 145, 149 (Bankr.

D.N.M. 2008) (continuing in Chapter 11 would leave “[c]

reditors and the estate . . . far better off” than dismissal

or conversion because the proposed plan provided for a

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significant capital infusion that would pay all creditors

in full as of the effective date of the plan); In re Costa

Bonita Beach Resort Inc., 479 B.R. 14, 43 (Bankr. D.P.R.

2012) (unusual circumstances existed where Chapter 11

plan was more protective of unsecured creditors than

other options); In re Melendez Concrete Inc., 11-09-12334

JA, 2009 Bankr. LEXIS 2925, 2009 WL 2997920, at *7

(Bankr. D.N.M. Sept. 15, 2009) (unpublished) (finding

unusual circumstances where debtor’s assets were

three times more valuable than its secured debt and

various circumstances, including an economic recission,

established that creditors were likely to recover more in

Chapter 11 than liquidation).

We agree that circumstances inherently present in

bankruptcy, such as disputes regarding the validity and

amount of a creditor’s claim, are not “unusual” for purposes

of Section 1112(b)(2). To meet this standard, there must

be something beyond the inherent financial pressures

and adversarial differences involved in a bankruptcy

case to establish that the purposes of Chapter 11 or the

creditors’ interests are better served by continuing under

that chapter.

Baroni argues that the bankruptcy court should not

have converted her case to Chapter 7 because her ability

to immediately cure her default by paying the bank the

Reserve Account funds was an unusual circumstance

given the confusion caused by the two 1099-Cs that she

and her husband received. Baroni misunderstands the

law. The statute makes clear that the ability to cure a

default is not itself an unusual circumstance because

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unusual circumstances and the ability to cure are two

separate aspects of what must be shown to establish that

no Section 1112(b) relief should be granted even though

cause for granting such relief was established. 11 U.S.C.

§ 1112(b)(2).

Moreover, Baroni’s arguments as to why allowing

her to immediately cure her default demonstrate only

why granting relief was not in her best interests. But the

ultimate question is the best interests of the creditors and

the estate. Id.; see Khan v. Rund (In re Khan), No. BAP

CC-11-1542-HPAD, 2012 Bankr. LEXIS 2574, 2012 WL

2043074, at *8 (B.A.P. 9th Cir. June 6, 2012) (unpublished).

She does not explain why allowing her to transfer the

reserve funds, as she should have done long before,

was in the best interests of the creditors or the estate,

particularly where she had an ongoing payment obligation

and a track record of not making payments voluntarily.

We note further that even if the asserted IRS form

confusion was a unique circumstance, Baroni’s reliance

on this as justification for not paying Bank of NYM as

required under the Plan is just a continuation of her

challenge to the bank’s secured claim, which she had

already litigated unsuccessfully. And as the bankruptcy

court noted, Baroni failed to raise her 1099-C argument

until after she lost her adversary proceeding against

Bank of NYM.

For these reasons, we conclude that the bankruptcy

court did not abuse its discretion in concluding that Section

1112(b)(2)’s unusual-circumstances exception to granting

relief does not apply.

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Appendix A

Does conversion best serve the creditors and

the estate?

Baroni also argues that the bankruptcy court did

not adequately consider which remedy—dismissal or

conversion—was warranted. We are unpersuaded.

The bankruptcy court considered the effect of the

administration fees that would be incurred under Chapter

7 and determined that they did not substantially detract

from the estate. As for creditor interests, Bank of NYM

and Wells Fargo specifically explained to the bankruptcy

court during both the conversion hearing and the

subsequent reconsideration hearing why they preferred to

“take [their] chances with [a Chapter 7 trustee]” given the

difficulties Baroni had created as a debtor-in-possession. 3

And while a court must consider the best interests of all

creditors, In re Owens, 552 F.3d at 960-61, the bankruptcy

court had no basis to find that any creditor received less

in Chapter 7 than in Chapter 11.

First, no creditor objected to Bank of NYM’s motion

for conversion.4 See Renewable Energy, Inc. v. U.S. Tr.

3. Baroni argues, and Bank of NYM admits, that conversion

may not have been in the best interest of creditors if the assets

and sale and rental proceeds at issue in the turnover order did

not revest in the Chapter 7 estate, which is the issue raised in the

second appeal. As we hold the assets did revest in the estate, we do

not address this point.

4. Baroni argues that Bank of NYM failed to give proper

notice of its conversion motion to post-petition, post-confirmation

creditors. However, she did not raise this argument until her motion

for reconsideration, and as a result the bankruptcy court deemed the

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(In re Renewable Energy, Inc.), No. BAP WW-15-1089KuJuTa, 2016 Bankr. LEXIS 4256, 2016 WL 7188656, at

*5 (B.A.P. 9th Cir. Dec. 9, 2016) (unpublished) (finding no

error in bankruptcy court decision to choose conversion

over dismissal when no creditor objected). And second, the

bankruptcy court determined that conversion would bring

a quicker resolution because dismissal would require the

creditors to freshly pursue their claims against Baroni

who had “been litigating now for six years,” longer than

the five years contemplated in the Plan itself. 5 See In re

Red Door Lounge, 559 B.R. at 737. Again, the record

establishes that the bankruptcy court conducted the

proper analysis in assessing which remedy to select, and

we find no abuse of discretion in its decision to convert

Baroni’s case to Chapter 7.

For all these reasons, we affirm the bankruptcy

court’s order granting Bank of NYM’s motion to convert

Baroni’s bankruptcy from Chapter 11 to Chapter 7.

B. Asset Turnover

In Baroni’s second appeal, she challenges the

bankruptcy court’s order requiring her to turn over the

issue waived. Even overlooking that Baroni did not directly appeal

the bankruptcy court’s order on reconsideration, a court “’does not

abuse its discretion when it disregards legal arguments made for

the first time’ on a motion to alter or amend a judgment.” United

Nat’l Ins. Co. v. Spectrum Worldwide, Inc., 555 F.3d 772, 780 (9th

Cir. 2009) (quoting Zimmerman v. City of Oakland, 255 F.3d 734,

740 (9th Cir. 2001)).

5. Indeed, Baroni had filed another adversary proceeding

raising the 1099-C issues.

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rent and sale proceeds from her rental properties to the

Chapter 7 Trustee. Whether property is included in a

bankruptcy estate is a question of law subject to de novo

review. Klein v. Anderson (In re Anderson), 988 F.3d 1211,

1213 (9th Cir. 2021) (per curiam). We also review issues of

statutory interpretation de novo. Connell v. Lima Corp.,

988 F.3d 1089, 1097 (9th Cir. 2021).

We start with the bedrock principle that filing

a bankruptcy petition creates a bankruptcy estate

consisting of “all legal or equitable interests of the debtor

in property as of the commencement of the case.” 11 U.S.C.

§ 541(a)(1). Under Chapter 11, “the confirmation of a plan

vests all of the property of the estate in the debtor” and

“the property dealt with by the plan is free and clear of

all claims and interests of creditors.” Id. § 1141(b), (c); see

Hillis Motors, 997 F.2d at 587. Baroni argues that when

her Plan was confirmed, this vesting provision vested

all property of the Chapter 11 estate in her, leaving the

Chapter 11 estate terminated or empty. Consequently,

when the bankruptcy court converted the case to Chapter

7, six years after the Plan was confirmed, the Chapter 7

estate had no assets.

The Bankruptcy Code is silent as to what constitutes

the bankruptcy estate when a Chapter 11 case is converted

to Chapter 7 after plan confirmation. Relying on our

caselaw and the Central District of California’s local

bankruptcy rules, the bankruptcy court concluded that

the undistributed rental property proceeds reverted to the

bankruptcy estate upon conversion to Chapter 7. Because

we conclude that our caselaw answers this question, we do

not address the Central District’s local bankruptcy rule.

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Appendix A

Given Congress’s silence, courts have varied in their

approach to what happens with the bankruptcy estate

upon conversion from Chapter 11 to Chapter 7. See, e.g.,

Hagan v. Hughes (In re Hughes), 279 B.R. 826, 829-30

(Bankr. S.D. Ill. 2002) (listing differing approaches);

In re Sundale, Ltd., 471 B.R. 300, 305-06 (Bankr. S.D.

Fla. 2012) (same). We have addressed this issue and

have emphasized that the vesting provisions in 11 U.S.C.

§ 1141 are “explicitly subject to the provisions of the plan.”

Pioneer, 264 F.3d at 807 (quoting Hillis Motors, 997 F.2d

at 587). We have also made clear that the plan does not

need to explicitly state that assets revest in a converted

Chapter 7 estate for this to happen. Pioneer, 264 F.3d at

807.

Although not a conversion case, our decision in

Hillis Motors is instructive. There, we analyzed whether

estate property in a Chapter 11 case remained subject

to the automatic stay after confirmation in the context of

determining whether a stay violation had occurred. Hillis

Motors, 997 F.2d at 586-89. We concluded that there was a

post-confirmation estate, the assets at issue were part of

the estate, and the assets were subject to the stay due to

several “atypical” provisions in the plan. Id. at 589-90. For

example, the plan required payment of post-confirmation

profits into the estate for later distribution; it protected

the estate from post-confirmation claims through a postconfirmation stay; it contemplated that any debt discharge

would occur in the future; and it required that the debtor’s

business be “conducted under court supervision via the

trustee until all . . . creditors were paid,” depriving the

debtor of the freedom “to deal with its property and the

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world as it would have been [able to] if it had not been

subject to the jurisdiction of the bankruptcy court.”

Id. at 587-90. Together, these provisions indicated that

“[a]lthough there was a confirmed plan, the reorganization

process continued post-confirmation.” Id. at 589. Thus the

“language, purposes, and context” of the plan caused the

property to remain part of the estate and thus protected

by the stay, post-confirmation because the property “did

not revest in the debtor at confirmation.” Id. at 590.

Subsequent cases addressing conversion have relied

on Hillis Motors. In Pioneer, several beneficiaries of a

confirmed Chapter 11 plan complained that a liquidation

corporation, formed under the plan to take “possession

of and liquidate[] property of a debtor for distribution

to creditors,” was producing insufficient proceeds and

refusing to provide financial information. 264 F.3d at

804-08. The bankruptcy court converted the case to

Chapter 7 and held, despite plan confirmation, that the

unadministered assets had revested in the Chapter 7

estate. Id. at 806. The BAP affirmed.

On appeal to this court, the debtor argued that “the

Chapter 11 estate vanished upon confirmation,” and

thus “no estate existed to be converted to Chapter 7

for administration by a Chapter 7 trustee.” Id. at 807.

We rejected this argument, holding that “[u]nder these

circumstances” the “language and purpose of the [plan]

demonstrate[d] that assets that vested in [the liquidation

corporation] upon confirmation revested in the estate

when the bankruptcy court converted the case to Chapter

7.” Id. at 807-08. Citing Hillis Motors, we reasoned that

24a

Appendix A

although the plan did not expressly contemplate the

effect of conversion, it “(1) contain[ed] explicit provisions

regarding the distribution of liquidation proceeds to

the [creditors], the plan’s primary beneficiaries, and (2)

g[ave] the bankruptcy court broad powers to oversee

implementation of the plan.” Id. at 807. Thus, the “assets

held by [the liquidation corporation] for the benefit of the

[plan beneficiaries] bec[a]me assets of the estate upon

conversion to Chapter 7.” Id. at 808.

Based on this authority, the BAP has applied the socalled “two prongs” of Pioneer in determining whether

assets revest in the Chapter 7 estate upon conversion:

(1) whether there is “an explicit provision regarding the

distribution of future proceeds of an asset to creditors,”

and (2) whether the plan retains “broad powers in the

bankruptcy court to oversee implementation of the plan.”

Captain Blythers, Inc. v. Thompson (In re Captain

Blythers, Inc.), 311 B.R. 530, 535-36 (B.A.P. 9th Cir. 2004);

see United States v. Villalobos (In re Villalobos), No. BAP

NV-13-1179, 2014 Bankr. LEXIS 978, 2014 WL 930495, at

*8-9 (B.A.P. 9th Cir. Mar. 10, 2014) (unpublished). Pioneer

does not create “prongs,” or separate elements that are

necessary to a finding that assets revest in a Chapter

7 estate. This analysis derives from Hillis Motors,

which found myriad plan provisions indicated that “the

reorganization process continued post-confirmation”

and thus the property “did not revest in the debtor at

confirmation.” Hillis Motors, 997 F.2d at 589-90.

The central question is whether the Plan’s “language,

purposes, and context” changed the effect of the general

25a

Appendix A

vesting provisions in 11 U.S.C. § 1141 after conversion to

Chapter 7. Id. at 590. This was the question presented

in Pioneer, where we considered the “prongs” as just

two “circumstances” in determining the plan’s purpose

and requirements. 264 F.3d at 808. Pioneer did not limit

courts to considering only these two “circumstances” when

deciding whether assets revest in a Chapter 7 estate after

conversion. See id. Thus, we clarify that a bankruptcy

court should undertake a holistic analysis of the plan to

determine whether its provisions deviate from the default

vesting rule in 11 U.S.C. § 1141(b).6 Hillis Motors, 997 F.2d

at 590; Pioneer, 264 F.3d at 808.

Turning to the language, purposes, and context of

Baroni’s Plan, it has no express provision dealing with

post-confirmation conversion and states that confirmation

of the Plan “vests all property of the estate in the Debtor”

and that Baroni “will retain all assets.” Indeed, Baroni

points out that, under the terms of the Plan, she was able

to rent out the properties as she saw fit. But that is only

one piece of the analysis.

The Plan also provides that Baroni’s rental properties

were subject to disputed proofs of claim which, at plan

confirmation, remained unresolved and required resolution

by the bankruptcy court before any type of distribution

could happen. The Plan required Baroni to make regular

installment payments into Reserve Accounts which would

6. Indeed, as the BAP has reasoned, the second so-called

“prong” may not add much to the analysis anyway, as the bankruptcy

court’s ongoing jurisdiction is likely satisfied in most Chapter 11

cases. In re Captain Blythers, 311 B.R. at 535.

26a

Appendix A

revert to her creditors if her challenges to their claims

were unsuccessful. Furthermore, a significant portion of

the future Plan payments came from the “monthly rental

income [Baroni] receive[s] from the rental properties,”

which was a “source[] of money earmarked to pay

creditors.” The “Future Financial Outlook” section of the

Plan has several paragraphs discussing the properties

and how they were intended to assist in paying for the

Plan, and the Plan describes each property in detail

including how much rent each was generating. Taken

together, these provisions do not establish that Baroni

received the properties “free and clear of all claims and

interest of creditors” at confirmation, as would be the

case under the general vesting provisions in 11 U.S.C.

§ 1141. Instead, the income from the properties remained

subject to the Plan because the premise of the Plan was

to pay creditors with the ongoing income stream from the

rental properties. This was how the Plan accomplished

the Chapter 11 reorganization.

Baroni disputes this reading of the Plan and asserts

that the Plan gave her creditors the right to foreclose on

their liens against the rental properties when she defaulted

on her Plan payments, which she argues indicates that

the Plan did not contemplate future distributions. This

argument is not persuasive. The Plan prohibited Baroni’s

creditors from enforcing their “pre-petition claims against

the Debtor or the Debtor’s property until the date the

Debtor receives a discharge.” This means that the Plan

required Baroni’s creditors to return to bankruptcy court

to seek relief from the stay before taking any enforcement

action against Baroni. That the Plan provided ongoing

27a

Appendix A

stay benefits indicates that the assets did not revest in

Baroni at plan confirmation because those assets were

still subject to litigation; otherwise, she would not need

ongoing stay protection. See Hillis Motors, 997 F.2d at

589-90 (holding because the debtor remained protected

by the automatic stay during administration of the plan,

her assets remained in the estate). To hold that the

unadministered rent and sale proceeds did not revest in

the bankruptcy estate upon conversion to Chapter 7 would

frustrate the intent of the Plan and is contrary to many

of its provisions.

III. CONCLUSION

We find no error in the bankruptcy court’s order at

issue in Baroni v. Seror, No. 21-55150, which concluded

that Baroni’s failure to comply with the payment terms set

out in her Plan was a material default and that conversion

of her case from Chapter 11 to Chapter 7 was warranted.

Likewise, we find no error in the bankruptcy court’s

turnover order at issue in Baroni v. Seror, No. 21-55076,

which required Baroni to turn over the undistributed

proceeds from the sale and rental of the rental properties

to the Chapter 7 Trustee.7

AFFIRMED.

7. The stay pending appeal entered in this case is lifted.

28a

B THE UNITED

APPENDIX B —Appendix

ORDER OF

STATES DISTRICT COURT FOR THE CENTRAL

DISTRICT OF CALIFORNIA, LOS ANGELES

DIVISION, DATED JANUARY 25, 2021

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

CASE NO. CV 20-4338 MWF

IN RE: ALLANA BARONI

ORDER RE: APPEAL FROM THE

UNITED STATES BANKRUPTCY

COURT’S TURNOVER ORDER

Before the Court is an appeal from the United States

Bankruptcy Court (the Honorable Marin R. Barash,

United States Bankruptcy Judge). Appellant Alanna

Baroni appeals the Bankruptcy Court’s Order directing

her to turn over certain property to the Trustee of the

estate (the “Turnover Order”). The Turnover Order was

issued on March 31, 2020. (See Docket No. 1).

Alanna Baroni submitted her Opening Brief (“OB”)

on August 6, 2020. (Docket No. 18). On September 8,

2020, Appellee David Seror, Chapter 7 Trustee, submitted

his Brief (“AB”). (Docket No. 21). On October 5, 2020,

Appellant submitted her Reply Brief (“RB”). (Docket

No. 22).

The Court has read and considered the papers filed

in this appeal, and held a telephonic hearing on January

29a

Appendix B

19, 2021, pursuant to General Order 20-09 arising from

the COVID-19 pandemic.

The Turnover Order is AFFIRMED. The Bankruptcy

Court did not err in determining that property which had

revested in Appellant upon confirmation of the chapter 11

Plan revested in the estate upon conversion to chapter 7.

BACKGROUND

The Bankruptcy Case and the Chapter 11 Plan

Appellant’s Second Amended Chapter 11 Plan

of Reorganization (the “Plan”) was confirmed by the

Bankruptcy Court on April 15, 2013. (ER 101-144).

Prior to filing for bankruptcy, Appellant owned four

real properties, including her residence (the “Calabasas

Property”) and three rental properties: the Henderson

Property, the Carmel Property, and the Camarillo

Property (collectively, the “Rental Properties”). (ER 110).

Due to an economic downturn, Appellant was forced to

lower the rent for each of the Rental Properties, which

resulted in insufficient income for Appellant to cover

the mortgages on the respective properties. (ER 109).

One of the goals of the Plan was to allow Appellant to

restructure secured debt on the Rental Properties so that

the rental income could service the debt and cover HOA

dues, property taxes, insurance and other maintenance

expenses. (ER 110).

The Plan bifurcated the claims of secured lienholders,

and provided that each lienholder would retain a secured

30a

Appendix B

claim in the amount of the value of the property, and an

unsecured claim for the balance. (ER 117-18). Appellant

was to continue leasing the Rental Properties and use the

rental income to pay creditors. (ER 109, 113). The other

two sources of money “earmarked” to pay creditors were

earnings from personal services performed by Appellant

and a portion of cash on hand. (ER 113). Debtor was to

manage her own business and financial affairs, including

creating, maintaining, and administering accounts

described in the Plan, and distributing money to allowed

claim holders. (ER 138).

Under a section entitled “Assets and Liabilities of the

Estate,” the Plan provides:

The identity and fair market value of the

estate’s assets are listed in Exhibit “3” so that

the reader can assess what assets are at least

theoretically available to satisfy claims and to

evaluate the overall worth of the bankruptcy

estate. Whether the Plan proposes to sell any

of these assets is discussed in Section XVII.

(ER 135). Section XVII, entitled “Sale or Transfer of

Property; Assumption of Contracts and Leases; Other

Provisions,” provides in part:

Debtor will retain all assets and assume all

executor [sic] contracts and unexpired leases.

Debtor is not in default of any executory

contract or unexpired lease and therefore no

cure payments are required.

31a

Appendix B

(ER 140). Section XX, entitled “Effect of Confirmation of

Plan,” provides:

The provisions of a confirmed Plan bind the

Debtor, any entity acquiring property under

the Plan, and any creditor, interest holder,

or general partner of the Debtor, even those

who do not vote to accept the Plan. The

confirmation of the Plan vests all property of

the estate in the Debtor. The automatic stay is

lifted upon confirmation as to property of the

estate. However, the stay continues to prohibit

collection or enforcement of pre-petition claims

against the Debtor or the Debtor’s property

until the date the Debtor receives a discharge,

if any. If the Debtor does not seek a discharge,

the discharge is deemed denied, and the stay

as to the Debtor and the Debtor’s property

terminates upon entry of the order confirming

the Plan.

(ER 141-42).

On March 26, 2019, Appellant sold the Henderson

Property for $315,078.12 (the “Sale Proceeds”). (ER 482).

On March 11, 2019, the secured creditor for the

Camarillo Property, the Bank of New York Mellon

(“BoNYM”) moved to convert or dismiss Appellant’s

case to one under chapter 7, asserting that Appellant had

materially defaulted under the Plan by failing to disburse

funds held in a reserve account to BoNYM, as the Plan

32a

Appendix B

required. (Bk. Docket No. 949). The Bankruptcy Court

issued an order granting the motion to convert on April

29, 2019. (Bk. Docket No. 967). On April 30, 2019, Appellee

David Seror was appointed as the chapter 7 Trustee. (Bk.

Docket No. 968).

B. The Turnover Order

Appellant filed the instant appeal of the Conversion

Order.

On June 26, 2019, the Trustee filed a motion for

turnover, seeking entry of a court order directing

Appellant to turn over to the Trustee all property of the

estate, including, (a) the Sale Proceeds from the recent

Henderson Property sale, (b) the rent proceeds from the

Camarillo and Carmel Properties (the “Rental Proceeds”),

and (c) a 1955 Ford Thunderbird (the “Turnover Motion”).

(ER 1-24). Trustee’s request for the Thunderbird was

subsequently withdrawn. (ER 483).

Appellant opposed the Turnover Motion, asserting

that no property remained in the estate under the terms

of the confirmed Plan, and therefore, no property should

be turned over to the Trustee. (ER 25-151). After ordering

supplemental briefing and holding two hearings on the

issue, the Bankruptcy Court granted the Turnover

Motion, and issued the Turnover Order on March 31,

2020. (ER 474-87).

In the Turnover Order, the Bankruptcy Court

acknowledged that, in the absence of a specific term in a

33a

Appendix B

chapter 11 plan, the Bankruptcy Code does not address

what happens to the property of an estate revested in a

chapter 11 debtor pursuant to a confirmed plan if there

is a post-confirmation conversion to chapter 7. (ER 483)

(citing Cobalis Corp. v. YA Global Invest., L.P. (In re

Cobalis Corp.), 517 B.R. 169, 173 (C.D. Cal. 2014); Captain

Blythers, Inc. v. Thompson (In re Captain Blythers,

Inc.), 311 B.R. 530, 535 (B.A.P. 9th Cir. 2004) aff’d 182

Fed. App’x 708 (9th Cir. 2006)). The Bankruptcy Court

also acknowledged that this was the situation here, as

Appellant’s Plan did not address what happens to property

dealt with in the Plan upon a post-confirmation conversion

to chapter 7. (ER 482).

The Bankruptcy Court looked to two sources to fill the

gap in the Plan’s terms. First, it cited Local Bankruptcy

Rule 3020-1(d), which provides that:

the property of the reorganized debtor . . . that

has not been distributed under the plan shall

be vested in the chapter 7 estate, except for

property that would have been excluded from

the estate if this case had always been one

under chapter 7.

(ER 484-85) (citing Local Bankruptcy Rule 3020-1(d); In

re Kenny G Enter., LLC, 2014 WL 4100429, *13 (B.A.P. 9th

Cir., Aug. 20, 2014)). The Bankruptcy Court incorporated

Local Bankruptcy Rule 3020-1(d) into the Plan. (ER 485).

Second, the Bankruptcy Court cited In re Consolidated

Pioneer Mortgage Entities (“Pioneer”), 264 F.3d 803, 807

(9th Cir. 2001) for the proposition that a debtor’s property

34a

Appendix B

revests into the chapter 7 estate upon post-confirmation

conversion where (1) the plan provides for the distribution

of future proceeds of an asset to creditors; and (2) the

bankruptcy court retains broad powers to supervise the

implementation of the plan. (ER 484).

The Bankruptcy Court determined that the Plan

satisfied both Pioneer conditions. (ER 485). First, it

found that the Plan provided for the distribution of future

proceeds of assets to creditors. In support, the Bankruptcy

Court referenced the provisions of the Plan which provided

that (a) the rental proceeds were one of three sources of

money “earmarked to pay creditors,” and (b) if a surplus

arose from the disallowance of unsecured claims, Debtor

was required to distribute the surplus funds to holders

of allowed unsecured claims until the claims were paid in

full, before reverting back to Debtor. (ER 481). Second,

the Bankruptcy Court found that it retained broad power

to oversee the implementation of the Plan, including (a)

resolving disputed secured and unsecured claims, (b)

potentially granting relief from the automatic stay which

continued post-confirmation, (c) determining whether

conditions for Debtor’s discharge have been met, and (d)

holding exclusive jurisdiction over matters related to the

Plan prior to entry of a final decree, after which relief

could be sought in a state court of general jurisdiction.

(ER 479-81, 485).

Drawing upon these two sources to interpret the Plan,

the Bankruptcy Court held that the Camarillo Property

(and the rents derived therefrom), the Carmel Property

(and the rents derived therefrom), and the sale proceeds

35a

Appendix B

from the Henderson Property, all vested in the chapter 7

estate upon conversion. (ER 482-83, 485). The Bankruptcy

Court ordered Appellant to turn this property over to the

Trustee. (ER 485).

Appellant filed the instant appeal of the Turnover

Order.

II. STANDARD OF REVIEW

The Court has jurisdiction to hear appeals from final

judgments, orders, and decrees of the bankruptcy court.

28 U.S.C. § 158(a). When considering an appeal from the

bankruptcy court, a district court uses the same standard

of review that a circuit would use in reviewing a decision

of a district court. See In re Baroff, 105 F.3d 439, 441 (9th

Cir. 1997). The Court reviews de novo the Bankruptcy

Court’s conclusions of law and reviews for clear error

the Bankruptcy Court’s findings of fact. See In re Int’l

Fibercom, Inc., 503 F.3d 933, 940 (9th Cir. 2007).

III. DISCUSSION

Appellant argues that the Turnover Order must

be reversed because the terms of the Plan revested

Appellant’s property in her at the time of confirmation,

which was not reversed and revested into the estate upon

conversion to chapter 7. (OB 15-19).

“There is no Bankruptcy Code provision addressing

what happens to the property of a debtor in a postconfirmation Chapter 7 conversion.” In re Cobalis Corp.,

36a

Appendix B

517 B.R. at 173 (C.D. Cal. 2014) (citing In re Captain

Blythers, 311 B.R. at 535). Accordingly, “[u]nless the plan or

confirmation order provides otherwise, postconfirmation

conversion of a debtor’s Chapter 11 case to Chapter 7

will not reverse the revesting of estate property in the

debtor resulting from plan confirmation.” Judge Judith K.

Fitzgerald (Ret.) & Judge Mary F. Walrath, The Rutter

Group Practice Guide: Bankruptcy (Nat. Ed.), Ch. 11L., Consequences of Plan Confirmation [11:2058] (2020).

“Thus, a Chapter 7 case will generally not have any estate

property to administer upon postconfirmation conversion,

because all estate property will have revested in the

reorganized debtor upon confirmation.” Id. (emphasis

in original) (citing cases); see also 11 U.S.C. § 1141(b)

(providing that property of the estate vests in the debtor

upon plan confirmation “except as otherwise provided in

the plan”).

The Plan expressly provides that its confirmation

“vest[ed] all property of the estate in the Debtor.” (ER

142). The Plan is silent, however, about what happens

to Debtor’s revested property, if anything, in the event

of conversion to chapter 7. The question, then, is how to

interpret the Plan as to this issue.

The Plan’s Language and Purpose

“A reorganization plan resembles a consent decree and

therefore, should be construed basically as a contract.”

Hillis Motors, Inc. v. Hawaii Auto. Dealers’ Ass’n, 997

F.2d 581, 588 (9th Cir. 1993) (citation omitted). “[S]tate law

constitutes the federal rule of decision here and governs

37a

Appendix B

[the Court’s] interpretation of [Appellant’s] plan.” Id.

(citation omitted). Under California law, “[t]he basic goal

of contract interpretation is to give effect to the parties’

mutual intent at the time of contracting.” Reilly v. Inquest

Tech., Inc., 218 Cal. App. 4th 536, 554, 160 Cal. Rptr. 3d

236 (2013) (citations omitted). “Also, under California law,

ambiguities in a contract are generally construed against

the drafter.” In re Captain Blythers, Inc., 311 B.R. 530,

536 (B.A.P. 9th Cir. 2004), aff’d, 182 F. App’x 708 (9th Cir.

2006) (citing Ponder v. Blue Cross of Southern California,

145 Cal. App. 3d 709, 718, 193 Cal. Rptr. 632 (1983)).

The Ninth Circuit has recognized that even where a

confirmed plan does not explicitly so provide, a debtor’s

assets will revest in the estate upon conversion where

the “language and purpose” of the plan necessitate such

a result. See Pioneer, 264 F.3d at 807-08 (citing Hillis,

997 F.2d at 589).

In Hillis, the Ninth Circuit confronted the issue of

whether the debtor’s corporate property revested in the

debtor upon confirmation of the chapter 11 plan, where the

plan’s text provided no clear answer. 997 F.2d at 590. The

Hillis court acknowledged that confirmation customarily

revests the property in the estate of the debtor, discharges

all dischargeable claims against the debtor, and lifts the

automatic stay of acts against the debtor or its property,

unless the plan provides otherwise. Id. at 589. However,

the debtor’s reorganization plan was atypical in many

ways. Specifically, the trustee, acting as the bankruptcy

court’s representative, retained management and strict

control over the debtor’s business, and therefore, the

38a

Appendix B

debtor “was not free to do what it pleased with its assets

and property[.]” Id. In addition, the plan’s clear purpose

in permitting the continued operation of the business

was to repay the company’s creditors under the court’s

supervision, and only after the payment of all estate

claims and expenses could the business operate “free and

clear of judicial intervention.” Id. The Ninth Circuit held

that this extrinsic evidence “points directly towards the

conclusion that [the debtor’s] corporate property did not

revest in the debtor at confirmation[,]” but remained part

of the estate. Id. at 590.

In Pioneer, when six related entities filed chapter 11,

Pioneer Liquidating Corporation (“PLC”) was specifically

“formed in a manner to implement and fulfill the purposes

of the plan[,]” and therefore, was to take title to assets

of all six estates, liquidate those assets, and use the

liquidated funds to resolve and pay creditor and investor

claims. 264 F.3d at 804-05. When the bankruptcy court

thereafter converted the case to chapter 7, it ordered

PLC to turn over all property of the estate. Id. at 806.

PLC argued that confirmation of the plan had vested all

property of the estate in PLC, and therefore, no estate

existed to be converted to chapter 7. Id. at 807. The

Ninth Circuit disagreed. It explained that “[a]lthough

typically confirmation of a plan ‘terminates the existence

of the estate, reversion of property from the estate to the

debtor upon confirmation contained in 11 U.S.C. § 1141(b)

is explicitly subject to the provisions of the plan.’” Id.

(quoting Hillis, 997 F.2d at 589) (internal alterations

omitted).

39a

Appendix B

Relying upon Hillis, the Pioneer court looked to the

“language and purpose” of the plan. Id. Although the plan

at issue “did not specifically provide that remaining assets

would revest in the estate in the event of conversion,” it did

“(1) contain[] explicit provisions regarding the distribution

of liquidation proceeds to the investors, the plan’s primary

beneficiaries; and (2) give[] the bankruptcy court broad

powers to oversee implementation of the plan.” Id. (citing

Hillis, 997 F.2d at 589). The Ninth Circuit held that,

“[u]nder these circumstances, assets held by PLC for the

benefit of the investors become assets of the estate upon

conversion to Chapter 7.” Id. at 808.

Appellant contends that Pioneer actually supports her

position because the plan in Pioneer specifically dedicated

PLC’s assets to creditors and strictly controlled PLC’s use

of the assets, whereas here, the Plan specifically dedicated

all assets to Appellant, and in no way limited her ability

to sell or otherwise use the assets, as would be expected

if the assets belonged to the estate post-confirmation. (OR

at 22-23). As an example, Appellant points to the fact that

no one objected to or claimed that her post-confirmation

sale of the Henderson Property was improper under the

Plan. (Id. at 8). Appellee maintains that Pioneer is not

materially distinguishable because the purpose of the Plan

was to pay creditors with monthly rental income and the

Bankruptcy Court retained broad jurisdiction over the

implementation of the Plan. (AB at 8-15).

With respect to the first Pioneer factor, the Court

agrees with Appellant that Pioneer is distinguishable

in the sense that the debtor in that case, PLC, was a

40a

Appendix B

liquidating entity created for the sole purpose of providing

payments to creditors from the liquidation of its assets.

(OB at 4). Whereas here, the Plan expressly provides for

the distribution of the Rental Proceeds to the creditors,

but not the liquidation of the Rental Properties. (See ER

109, 140). In addition, creditors were to be paid not only

with the Rental Proceeds, but also with (a) earnings from

services performed by an entity owned by Appellant,

Baroni Enterprises, LLC, and (b) a portion of cash on

hand as of the Effective Date. (ER 113).

While a purpose of the Plan certainly was to repay

creditors (like any chapter 11 plan), an additional

purpose was to assist Appellant in regaining financial

control of her Real Properties and avoid foreclosure.

(See ER 110 (“Debtor will seek to achieve through this

Chapter 11 Plan what she attempted pre-petition — to

restructure secured debt on rental properties so that

the rental income can service the debt and cover HOA

dues, property taxes, insurance, and other maintenance

expenses.”); ER 118 (“The goal of the restructure is to

make each rental property cash flow positive. Currently

the rent generated by each property is insufficient to

cover the first mortgage on each property.”). In fact, the

Plan expressly contemplated that the Real Properties

would not be sold but would be managed and retained by

Appellant — even in the event that Appellant’s revenue

was insufficient to pay creditors. (ER 140 (“Debtor will

retain all assets”); ER 139 (explaining that Appellant’s

cash on hand, which was being held for secured creditors,

would “serve as a savings account for Debtor in the event

of unexpected emergencies and to cover shortfalls in

41a

Appendix B

Plan payments resulting therefrom or resulting from

unforeseen circumstances that adversely affect Debtor’s

revenue”). And unlike in Hillis, the Bankruptcy Court did

not manage or retain strict control over Appellant’s rental

properties. Although Appellant was to pay creditors with

the Rental Proceeds, the Plan did not otherwise restrict

Appellant from being “free to do what [she] pleased” with

the Rental Properties. See Hillis, 997 F.2d at 589.

Interpreting the Plan in light of these express

provisions, the Court cannot conclude that the Plan’s

intended purpose was to strip Appellant of her Real

Properties and vest them in the chapter 7 estate upon

conversion.

With respect to the second Pioneer prong, it

appears that the Bankruptcy Court did retain broad

powers to implement the Plan, including the ability to

(a) resolve disputed secured and unsecured claims, (b)

grant relief from the automatic stay which continued

post-confirmation, (c) determine whether conditions for

Debtor’s discharge have been met, and (d) hold exclusive

jurisdiction over matters related to the Plan prior to entry

of a final decree. (ER 479-81, 485).

Nonetheless, as noted above, it appears that this

criterion would be “easily satisfied” by most chapter 11

plans. Captain Blythers, 311 B.R. at 538 (explaining that

“most confirmation orders and many plans explicitly

provide for continued bankruptcy jurisdiction over various

disputes arising from the plan,” though noting that these

provisions “are probably redundant” since jurisdiction is

42a

Appendix B

not created “simply by including such a term in a plan or

confirmation order”) (quoting Jacobson v. AEG Capital

Corp., 50 F.3d 1493, 1501 (9th Cir. 1995)). Accordingly,

“it is not evident that the requirement adds much to the

revesting analysis.” Id. (noting that the second Pioneer

prong was “easily satisfied by the Plan here (and, in our

experience, most others”)).

At the hearing, the Trustee argued that Pioneer was

his best case in support of his position. According to the

Trustee, the Real Properties revested in the chapter

7 estate upon conversion because, under Pioneer, the

purpose of the Plan was to resolve disputes with and pay

secured creditors and the Bankruptcy Court retained

jurisdiction over the heart of the Plan and ensure its

implementation. (Hearing Tr. 21:13-23:4).

The problem with this argument is that when Pioneer

is viewed with the high level of generality that the Trustee

urges, Pioneer’s two-prong test is rendered effectively

meaningless. Nearly every chapter 11 plan would fall

within its scope and an analysis of any given plan’s

“language and purpose” would be all but unnecessary.

Perhaps the Ninth Circuit intended Pioneer to apply this

broadly, but without a published opinion making clear

Pioneer’s vast applicability, the Court is unwilling to

interpret it in such a way.

B. Default Rule: Local Bankruptcy Rule 3020-1

Local Bankruptcy Rule 3020-1(b) provides that

every order confirming a chapter 11 plan must contain

43a

Appendix B

express language specified in the rule which, in essence,

solves the interpretive quandary at issue here by vesting

all undistributed property under the chapter 11 plan

to the chapter 7 estate upon conversion. See L.B.R.

3020-1(b) (specific language provided); see The Rutter

Group, California Practice Guide: Bankruptcy, Ch.

11-L., Consequences of Plan Confirmation [11:2058]

(2020) (referring to Local Bankruptcy Rule 3020-1(b) as

providing “specific language for the confirmation order

that addresses this problem”). The language provided

in Local Bankruptcy Rule 3020-1(b) was not included in

the Plan.

Local Bankruptcy Rule 3020-1(d) provides that, even

where a chapter 11 plan does not include the express

language in 3020-1(b),

unless otherwise provided in the plan, if the

case is converted to one under chapter 7, the

property of the reorganized debtor . . . that

has not been distributed under the plan shall

be vested in the chapter 7 estate, except for

property that would have been excluded from

the estate if this case had always been one

under chapter 7.

The Bankruptcy Court held that Local Bankruptcy

Rule 3020-1(d) operated as a default plan provision, and

vested in the chapter 7 estate Appellant’s property that

had not been distributed under the Plan, which included

the Rental Properties, the Rental Proceeds, and the Sale

Proceeds from the recent sale of the Henderson Property.

(ER 485-46).

44a

Appendix B

Appellant contends that Local Bankruptcy Rule

3020-1(d) is invalid to the extent that it purports to nullify

provisions of the Bankruptcy Code, specifically, 11 U.S.C.

§ 1141(b), which provides that “[e]xcept as otherwise

provided in the plan or the order confirming the plan,

the confirmation of a plan vests all of the property of the

estate in the debtor,” and section 1141(c), which provides

that “except as otherwise provided in the plan or in the

order confirming the plan, after confirmation of a plan,

the property dealt with by the plan is free and clear of all

claims and interests of creditors, equity security holders,

and of general partners in the debtor.” (OB at 32-34).

Appellant argues that interpreting Local Bankruptcy

Rule 3020-1(d) to reverse the default rules created by

§§ 1141(b) and (c) would impermissibly abridge and modify

a substantive right in violation of the Rules Enabling Act.

(Id. at 33) (citing 28 U.S.C. § 2075).

The Trustee contends that Local Bankruptcy Rule

3020-1(d) does not violate the Bankruptcy Code, but

permissibly provides a default provision, since neither

section 1141(b) nor section 1141(c) addresses what happens

in a post-confirmation conversion situation. (AB 17-18).

At the hearing, Nationstar argued that Local

Bankruptcy Rule 3020-1(d) does not impose a substantive

rule, but creates a procedural requirement that, prior to

confirmation, chapter 11 debtors must make an express

decision as to what will happen to revested property in

the event of conversion. (Hearing Tr. 29:3-19). Nationstar

asserted that, because Appellant chose not to include an

express provision in the Plan, Local Bankruptcy Rule

3020-1(d) permissibly provides a default rule. (Id.).

45a

Appendix B

The Court is persuaded by Appellees’ arguments that

§§ 1141(b) and (c) should not be interpreted as conferring

a substantive right on a debtor postconfirmation, since the

sections are completely silent on the issue of conversion.

Local Bankruptcy Rule 3020-1(d) cannot therefore be

construed as altering or abridging a substantive right

in violation of the Rules Enabling Act. The Local Rule

permissibly applies a default provision to a situation which

the Bankruptcy Code does not address.

Moreover, the Bankruptcy Code plainly allows parties

to contract around the situation of post-confirmation

conversion and create their own rules about what will

happen. See U.S.C. § 1141(b) (“[e]xcept as otherwise

provided in the plan or the order confirming the plan . . . ”);

§ 1141(c) (“except as otherwise provided in the plan or in

the order confirming the plan . . . ”). Applying California

principles of contract interpretation, the Local Rule can

be viewed as admissible extrinsic evidence that helps gapfill the Plan’s silence as to what happens in the event of

conversion. See Burch v. Premier Homes, LLC, 199 Cal.

App. 4th 730, 743-44, 131 Cal. Rptr. 3d 855 (2011) (“It is

well settled that, unless a court can to a certainty and with

sureness by a mere reading of the document, determine

which is the correct interpretation[,] extrinsic evidence

becomes admissible as an aid to interpretation[.]”)

(internal alterations and citation omitted).

Courts may reference extrinsic evidence to ascertain

“objective manifestations of the parties’ intent” which

demonstrate “the surrounding circumstances under which

the parties negotiated or entered into the contract; the

46a

Appendix B

object, nature and subject matter of the contract; and the

subsequent conduct of the parties.” People v. Shelton, 37

Cal. 4th 759, 767, 37 Cal. Rptr. 3d 354 (2006). “[A]s long as

such evidence is not used to give the instrument a meaning

to which it is not reasonably susceptible[,]” the extrinsic

evidence is admissible to interpret the language of an

agreement. Morey v. Vannucci, 64 Cal. App. 4th 904, 912,

75 Cal. Rptr. 2d 573 (1998).

As Nationstar argued, the Local Rule requires parties

to a chapter 11 plan to address expressly in the plan what

will happen to the debtor’s property in the event of postconfirmation conversion. Appellant opted not to provide

this express language. In light of these surrounding

circumstances under which the parties entered into the

Plan, the Plan’s silence should be construed as evidence

of the parties’ objective intent to be bound by the Local

Rule’s default provision. Therefore, was not error for the

Bankruptcy Court to conclude that the Plan revested

Appellant’s property in the chapter 7 estate upon

conversion.

IV. CONCLUSION

For the reasons stated above, the Bankruptcy Court’s

Conversion Order is AFFIRMED. As noted on the docket,

the stay of the sale by the Trustee of the real property

located at 3435 Rio Road, Carmel, California, 93921, will

expire today at 5:00 p.m. (See Docket No. 39). The stay is

extended to January 26, 2021, at 5:00 p.m. and will then

dissolve without further order of the Court. Any further

stay would have to be justified as a stay pending appeal

to the Ninth Circuit.

47a

Appendix B

IT IS SO ORDERED.

DATED: January 25, 2021

/s/ Michael W. Fitzgerald

MICHAEL W. FITZGERALD

United States District Judge

48a

Appendix Cof fact of the

Appendix c — findings

united states bankruptcy court for

the central district of california,

san fernando valley division,

filed march 31, 2020

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

SAN FERNANDO VALLEY DIVISION

Case No. 1:12-bk-10986-MB

Chapter 7

In re:

ALLANA BARONI,

Debtor.

FINDINGS OF FACT AND CONCLUSIONS

OF LAW REGARDING ORDER GRANTING

TRUSTEE’S TURNOVER MOTION

On April 29, 2019, this Court entered its order [Doc.

#967] granting the motion of Bank of New York Mellon

(“BONYM”) to convert this case chapter 11 to chapter

7 of the Bankruptcy Code (the “Conversion Date”). On

April 30, 2019, the United States Trustee filed its Notice of

Appointment of Trustee and Fixing of Bond; Acceptance

of Appointment as Interim Trustee [Doc. #968] pursuant

to which David Seror was appointed as the chapter 7

Trustee of this case (the “Trustee”), in which capacity he

continues to serve.

49a

Appendix C

On June 26, 2019, the Trustee for the bankruptcy

estate of debtor Allana Baroni (the “Debtor”) filed his

Motion for Turnover of Property of the Estate, and (2)

Order Compelling Debtor to Comply with Bankruptcy

Rule 1019 and Local Bankruptcy Rules 2015-2(c) and

3020-1(d) [Doc. #991] (the “Turnover Motion”). Pursuant

to the Turnover Motion the Trustee sought entry of a

Court order directing the Debtor (i) to turn over to the

Trustee all property of the estate including, but not

limited to, (a) the proceeds (the “Sale Proceeds”) from the

sale of the Henderson Property (defined below), (b) the

rent proceeds (the “Rent Proceeds”) from the Camarillo

Property (defined below) and the Carmel Property

(defined below), and (c) a 1955 Ford Thunderbird, and (ii)

to otherwise comply with Rule 1019 of the Federal Rules

of Bankruptcy Procedure (the “Bankruptcy Rules”) and

Local Bankruptcy Rules 2015-2(c) and 3020-1(d) . The

Debtor filed her opposition [Doc. #1004] (the “Opposition”)

to the Turnover Motion on July 3, 2019 pursuant to which

she alleged the following: (i) none of the Debtor’s property

that vested in her pursuant to the Confirmation Order

(defined below) is property of the chapter 7 estate, and

(ii) her case should be dismissed1 because the Debtor has

very few unsecured creditors (and their claims can easily

be satisfied) and secured creditors can pursue their rights

under state law.

1. The Debtor filed her motion to dismiss [Doc. #989] (the

“Motion to Dismiss”) on June 25, 2019, which was heard at the

same time as the Trustee’s Turnover Motion. The Debtor’s second

argument for why this Court should deny the Turnover Motion

mirrors the Debtor’s assertions in the Motion to Dismiss.

50a

Appendix C

The Court held an initial hearing on the Turnover

Motion on July 17, 2019, pursuant to which the Court

requested additional briefing from the Trustee and the

Debtor on the issue of what is in the chapter 7 estate,

if anything. The Court continued the hearing on the

Turnover Motion and on the Motion to Dismiss to August

29, 2019 at 2:30 p.m. At the continued hearing, Jonathan

Hayes and Matthew Resnik appeared on behalf of the

Debtor. Susan Seflin and Jessica Bagdanov appeared on

behalf of the Trustee. Justin Balser appeared on behalf of

BONYM. Bernard Kornberg and Adam Barasch appeared

on behalf of Nationstar and Wells Fargo. Greg Jones

appeared on behalf of CIT Bank. After considering the

Turnover Motion and all pleadings filed in support thereof

and in opposition thereto and the record of this case, and

the arguments of counsel, and evaluating credibility, the

Court on August 30, 2019, entered its Interim Order

Directing Turnover of Property of the Estate [Doc. #1057]

(the “Interim Order”) pursuant to which it granted in part

the Turnover Motion on an interim basis as set forth in

the Interim Order.

On October 7, 2019, the Court conducted a status

conference to resolve the disputes between the Trustee

and the Debtor regarding their respective proposed

Findings of Fact and Conclusions of Law regarding the

Turnover Motion. Among those disputes was the amount

of the sales proceeds from the Henderson Property

remaining as of the date this bankruptcy case converted

to chapter 7. The Trustee asserted that amount was

$315,078.12 and the Debtor asserted it was a lesser,

unspecified, amount. The Court set an evidentiary hearing

51a

Appendix C

for December 17, 2019, to resolve that issue, directed the

parties to continue with discovery regarding the factual

issues in dispute, and set a further briefing schedule in

connection with the evidentiary hearing. Thereafter,

the Debtor filed her Comments re Trustee’s Proposed

Findings and Order Granting Motion for Turnover

[Doc. #1100] by which she withdrew her objection to the

turnover amount of $315,078.12, rendering the evidentiary

hearing unnecessary.

The Court hereby makes the following findings of

fact and conclusions of law pursuant to Rule 52 of the

Federal Rules of Civil Procedure, made applicable here by

Rules 7052 and 9014 of the Federal Rules of Bankruptcy

Procedure:

I. FINDINGS OF FACT2

Procedural Background of the Debtor’s Bankruptcy

Case

A. The Debtor filed a voluntary petition [Doc. #1] on

February 1, 2012 under chapter 13 of 11 U.S.C. §§ 101 et

seq. (the “Bankruptcy Code”).

B. On February 10, 2012, the Debtor filed a motion

to convert [Doc. #10] her case to one under chapter 11 of

the Bankruptcy Code.

2. To the extent any finding of fact later shall be determined

to be a conclusion of law, it shall be so deemed, and to the extent any

conclusion of law later shall be determined to be a finding of fact, it

shall be so deemed.

52a

Appendix C

C. Property of the chapter 11 estate included, among

other things, the following: (a) residential real estate

located at 2240 Village Walk Drive Unit 2311, Henderson,

Nevada 89052 (the “Henderson Property”); (b) residential

real estate located at 3435 Rio Road, Carmel, California

92321 (the “Carmel Property”); (c) residential real estate

located at 5390 Plata Rosa Court, Camarillo, California

(the “Camarillo Property”); and (d) residential real estate

located at 3339 Via Verde Ct., Calabasas, California

91302 (the “Calabasas Property” and collectively, with

the Henderson Property, the Carmel Property and the

Camarillo Property, the “Real Properties”).

D. The Debtor filed her combined second amended

disclosure statement and plan [Doc. #376] (the “Plan”) on

March 20, 2013. The Plan was confirmed by order entered

on April 15, 2013 [Doc. #423] (the “Confirmation Order”)

on April 15, 2013.

E. This Court retained broad jurisdiction under the

Plan, which required the Court to oversee implementation

of the Plan in numerous ways:

Calculated as a percentage of the face amount

of the secured claims, the Plan disputed 99% of

the secured claims. Classes One, Two and Three

consist of undisputed secured claims totaling

$13,666. Plan, §§ X.f, X.g, X.h. The remaining

classes of secured claims are all disputed and

total $5,544,841: Class Four (treatment of Proof

of Claim 3), Class Five (treatment of Proof

of Claim 7), Class Six (treatment of Proof of

53a

Appendix C

Claim 6), and Class Seven (treatment of Proof

of Claim 10). Plan, §§ X.i, X.j, X.k, X.l. As such,

distributions to 99% of the secured claims

required resolution of the Debtor’s objections to

those claims by this Court. Debtor asserted those

objections by filing six adversary proceedings:

Baroni v. Nationstar Mortgage, LLC, 1:13-ap01069-MB, Baroni v. Green Tree Servicing, LLC,

et al., 1:13-ap-01070-MB, Baroni v. Wells Fargo,

N.A., 1:13-ap-01071-MB, Baroni v. The Bank of

New York Mellon, etc., 1:13-ap-01072-MB, Baroni

v. OneWest Bank, FSB et al. 1:13-ap-01249-MB

and Baroni v. Specialized Loan Servicing,

LLC, et al., 1:19-ap-01037-MB (collectively, the

“Adversary Proceedings”). Most of the Adversary

Proceedings also assert affirmative claims for

relief against the lenders and thus required

liquidation of the Debtor’s litigation claims

by this Court. See Plan, Exhibit 2. The Plan

provided that the Debtor would make payments

into a reserve account pending litigation with

the disputed secured creditors and, that “When

a disputed priority, administrative, or secured

claim becomes allowed, the Disbursing Agent will

distribute to the holder thereof an amount equal

to the amount in the Reserve Account held for

such claimant, within 10 business days of entry

of an order identifying the allowed claim holder.”

Plan, § X.c.

Calculated as a percentage of the face amount

of the unsecured claims, the Plan disputed 97%

54a

Appendix C

of the unsecured claims. Class Eight consists of

undisputed unsecured claims totaling $27,388.

Plan, § X.m. Class Nine consists of disputed

unsecured claims totaling $1,078,275. Plan, § X.n.

Distributions to 97% of the unsecured claims

required resolution of the Debtor’s objections to

those claims. As Class Nine consists exclusively

of the deficiency claims of the lenders in Classes

Five, Six and Seven, and the wholly unsecured

claim of the junior lienholder on the Henderson

Property (Proof of Claim 4), Debtor’s objections

to those claims were to be litigated in the

Adversary Proceedings filed in this Court. The

Plan proposed to pay holders of allowed unsecured

claims the total combined sum of $50,000, paid on

a pro rata basis between claimants. Plan, §§ X.m

and X.n.

The Plan vested all property of the estate in

the Debtor and then expressly continued the

automatic stay as to the Debtor’s property until

the date the Debtor received her discharge.

Plan, § X X.a. The Plan also continued the

automatic stay as to collection or enforcement

of prepetition claims until the date the Debtor

received her discharge. Id. Because the automatic

stay continued post-confirmation, even as to

property of the estate revested in the Debtor at

confirmation, and because bankruptcy courts

have exclusive jurisdiction to grant relief from the

automatic stay, the Plan mandated this Court’s

oversight until entry of the Debtor’s discharge.

55a

Appendix C

See Gruntz v. County of Los Angeles (In re

Gruntz), 202 F.3d 1074, 1082-83 (9th Cir. 2000).

Consistent w ith Bankruptcy Code section

1141(d)(5), the Plan delayed entry of the Debtor’s

discharge until completion of all payments under

the Plan. Plan, § XX.b. Thus, this Court was

required to determine whether the conditions for

entry of the Debtor’s discharge have been met.

The Plan expressly provided that relief relating

to a Plan provision could only be sought in a

state court of general jurisdiction after a final

decree was entered and the bankruptcy case

was closed, leaving this Court with exclusive

jurisdiction over matters related to the Plan and

its implementation prior to entry of a final decree.

Plan, § XX.e.

F. The Plan included provisions providing that the

property of the estate revested in the Debtor, to be

administered first for the benefit of creditors:

The Plan provided that the Debtor would

continue to lease the Henderson Property, the

Carmel Property and the Camarillo Property

(collectively, the “Rental Properties”) during

the five year term of the Plan and that income

from the Rental Properties would be one of three

“sources of money earmarked to pay creditors.”

Plan, §§ VII and IX.

56a

Appendix C

The Plan provided that if a surplus arose from

the disallowance of unsecured claims, the Debtor

was required to distribute the surplus funds first

to holders of allowed unsecured claims and any

surplus would revert back to the Debtor only if

such unsecured claims were paid in full. Plan,

§ X.c.

G. Under the Plan, the Debtor disputed certain

claims, including those of creditors holding secured claims

against the Real Properties. The Plan provided that the

Debtor would make payments into a reserve account

pending litigation with the disputed secured creditors

and, that “When a disputed priority, administrative, or

secured claim becomes allowed, the Disbursing Agent

will distribute to the holder thereof an amount equal to

the amount in the Reserve Account held for such claimant,

within 10 business days of entry of an order identifying

the allowed claim holder.” Plan, § X.c.

H. Additionally under the Plan, the Debtor proposed

to pay general unsecured creditors classified in Class 8

(undisputed general unsecured creditors) and Class 9

(disputed general unsecured claims of junior and stripped

mortgage holders) the total combined sum of $50,000,

paid on a pro rata basis between claimants. Plan, §§ X.m

and X.n.

I. On March 11, 2019, the secured creditor for the

Camarillo Property, Bank of New York Mellon (“BONY”),

filed its Motion to Convert [Doc. #949] this case from one

under chapter 11 of the Bankruptcy Code to one under

57a

Appendix C

chapter 7. The Motion to Convert was granted orally

by this Court at a hearing held on April 9, 2019. The

order granting the Motion to Convert [Doc. #967] (the

“Conversion Order”) was entered on April 29, 2019.

J. On April 30, 2019, the United States Trustee filed

its Notice of Appointment of Trustee and Fixing of Bond;

Acceptance of Appointment as Interim Trustee [Doc.

#968] pursuant to which David Seror was appointed as

the chapter 7 Trustee of this case, in which capacity he

continues to serve.

The Trustee’s Turnover Motion

K. On June 26, 2019, the Trustee filed the Turnover

Motion pursuant to which he sought entry of a Court

order directing the Debtor (i) to turn over to the Trustee

all property of the estate including, but not limited to, (a)

the proceeds (the “Sale Proceeds”) from the sale of the

Henderson Property, (b) the rent proceeds (the “Rent

Proceeds”) from the Camarillo Property and the Carmel

Property, and (c) a 1955 Ford Thunderbird, and (ii) to

otherwise comply with Rule 1019 of the Federal Rules

of Bankruptcy Procedure (the “Bankruptcy Rules”) and

Local Bankruptcy Rules 2015-2(c) and 3020-1(d) .

L. The Debtor filed her opposition [Doc. #1004] (the

“Opposition”) to the Turnover Motion on July 3, 2019

pursuant to which she alleged the following: (i) none of

the Debtor’s property that vested in her pursuant to the

Confirmation Order is property of the chapter 7 estate,

58a

Appendix C

and (ii) her case should be dismissed3 because the Debtor

has very few unsecured creditors (and their claims can

be easily satisfied) and secured creditors are left to their

rights under state law.

M. The Court held an initial hearing on the Turnover

Motion on July 17, 2019 pursuant to which the Court

requested additional briefing from the Trustee and the

Debtor on the issue of what is in the chapter 7 estate,

if anything. The Court continued the hearing on the

Turnover Motion and on the Motion to Dismiss to August

29, 2019 at 2:30 p.m.

N. On August 30, 2019, the Court entered its Interim

Order Directing Turnover of Property of the Estate [Doc.

#1057] (the “Interim Order”) pursuant to which it granted

the Turnover Motion on an interim basis as set forth in

the Interim Order.

G. The Court finds that it has had substantial

continuing jurisdiction over the property of the estate that

is dealt with under in the Plan. See Transcript of Hearing,

August 29, 2019 at 2:30 p.m. (“Hrg. Tr.”), p. 59:13-18 and

p. 64:14-15.

H. With respect to the Plan, the Court finds that (i)

the Plan provided for the Debtor to make payments to

3. The Debtor filed her motion to dismiss [Doc. #989] (the

“Motion to Dismiss”) on June 25, 2019, which was heard at the

same time as the Trustee’s Turnover Motion. The Debtor’s second

argument for why this Court should deny the Turnover Motion

mirrors the Debtor’s assertions in the Motion to Dismiss.

59a

Appendix C

creditors from, among other things, rent proceeds from

the Rental Properties; (ii) the Plan contemplated that the

Debtor would not sell the Rental Properties during the

term of the Plan; and (iii) the Rental Properties would

continue to provide revenue to make payments under the

Plan. Hrg. Tr., p. 58:21-25; p. 59:1-2 and p. 62:10-12.

I. The Court finds that the Plan did not address

what happens to property dealt with in the Plan upon

a post-confirmation conversion to chapter 7; therefore,

Local Bankruptcy Rule 3020-1(d) operates as a default

plan provision and requires that controls property of the

Debtor “that has not been distributed under the plan shall

be vested in the chapter 7 estate.” Hrg. Tr., p. 60:1-21 and

p. 61:1-5.

J. With respect to the Debtor’s arguments that the

Calabasas Property, the Camarillo Property and the

Carmel Property are not property of the estate and that

the Sale Proceeds are not property of the estate, the

Court did not find the Debtor’s arguments persuasive in

light of the Ninth Circuit’s decisions in In re Consolidated

Pioneer Mortgage Entities (“Pioneer”), 264 F.3d 803 (9 th

Cir. 2001) and Hillis Motors, Inc. v. Hawaii Audo. Dealers’

Ass’n, 997 F.2d 581, 589 (9th Cir. 1993), the decision of the

Bankruptcy Appellate Panel in Captain Blythers, Inc. v.

Thompson (In re Captain Blythers, Inc.), 311 B.R. 530,

535 (B.A.P. 9th Cir. 2004) aff’d 182 Fed. Appx. 708 (9th

Cir. 2006), the decision of the United States District Court

for the Central District of California in Cobalis Corp. v.

YA Global Invest., L.P. (In re Cobalis Corp.), 517 B.R.

169, 174 (C.D. Cal. 2014), and in light of Local Bankruptcy

60a

Appendix C

Rule 3020-1(d). Hrg. Tr., p. 70:19-25. The Court found

the arguments and legal authorities provided by the

Trustee persuasive on this point, and the Debtor did not

meaningfully distinguish the facts of this case from those

in Pioneer, or from those in the unpublished case of In re

Kenny G Enterprises, LLC, 692 Fed. Appx. 950 (9th Cir.

July 28, 2017).

K. The Court finds that the Calabasas Property, the

Camarillo Property (and rents derived therefrom) and

the Carmel Property (and the rents derived therefrom)

are property of the chapter 7 estate. Hrg. Tr., p. 71: 6-8.

L. The Trustee provided evidence that the Debtor

received $315,078.12 from the sale of the Henderson

Property on March 26, 2019, which is prior to conversion

of the case to chapter 7. Trustee’s supplemental brief [Doc.

#1032], Exhibit E and Declaration of David Seror ¶ 13.

The Debtor did not dispute that fact. In her opposition

to the Turnover Motion [Doc. #1004, p.11], the Debtor

claimed that she spent certain of the Sale Proceeds on

various expenses. Declaration of Allana Baroni [Doc.

#1004] ¶ 7. Thereafter, on October 31, 2019, the Debtor

filed her Comments re Trustee’s Proposed Findings

and Order Granting Motion for Turnover in which she

stated “that she will withdraw her objection to the amount

proposed by the Trustee, namely, $315,078.12.” [Doc. 1100

at 2:8-9]. While the Debtor states that she used the Sale

Proceeds to make certain payments, there is no evidence

in the record that, between the sale closing date and the

Conversion Date, the Debtor spent the Sale Proceeds

(although she may have spent them post-conversion, she

61a

Appendix C

would not have been entitled to do so). Additionally, the

Debtor’s Amended Schedules [Doc. #1036] state under

penalty of perjury that as of the Conversion Date, the

Baroni Enterprises, Inc. corporate bank account held

funds in excess of the Sale Proceeds. Accordingly, upon

conversion of the case, the entirety of the Sale Proceeds

in the amount of $315,078.12 constituted property of the

chapter 7 estate.

M. The Court finds that the Sale Proceeds from the

sale of the Henderson Property were are property of the

chapter 7 estate upon conversion and that the Debtor shall

deliver such amount to the Trustee, i.e., $315,078.12. the

Henderson Sale Proceeds remaining as of the Conversion

Date or the value of such property. Hrg. Tr., p. 71:2-6. 11

U.S.C. § 542(a).

N. The Trustee’s request for turnover of the

Thunderbird is deemed withdrawn. Hrg. Tr., p. 71:9-10.

O. With respect to the Debtor’s argument that the

Turnover Motion should not be granted because her case

should be dismissed (i.e., because the Debtor has very

few unsecured creditors and because secured creditors

can pursue are left to their rights under state law, the

Court disagrees and has addressed these arguments in

its Findings of Fact and Conclusions of Law entered with

respect to the Debtor’s Motion to Dismiss, which findings

are incorporated herein by this reference. [Doc. #1144].

62a

Appendix C

II. CONCLUSIONS OF LAW

1. The Court has jurisdiction over this contested

matter proceeding pursuant to 28 U.S.C. §§ 157 and 1334.

This contested matter is a core proceeding under 28 U.S.C.

§§ 157(b)(1) and 157(b)(2)(E), and is constitutionally core.

Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932

(2015); Stern v. Marshall, 131 S. Ct. 2594 (2011).

2. The Plan contains no explicit provisions addressing

post-confirmation conversion to chapter 7.

3. Bankruptcy Code section 548 does not address what

happens to property of the estate revested in a chapter

11 debtor if there is a post-confirmation conversion to

chapter 7. Cobalis, 517 B.R. at 173; Captain Blythers, 311

B.R. at 535 (“There is no direct answer in the Code to the

question of what happens to property of the debtor in a

post-confirmation conversion”).

4. This Court “must interpret a problematic section

of the Bankruptcy Code in light of the structure of the

Code as a whole, including its object and policy.” In re

Brown, --- F.3d ---, (9th Cir., Mar. 23, 2020), 2020 WL

1329662, *2 (interpreting section 548(f)(1) following a

post-confirmation conversion from chapter 13 to chapter

7) citing Hawkins v. Granchise Tax Bd., 769 F.3d 662, 666

(9th Circ. 2014) (citing Children’s Hosp. & Health Ctr. v.

Belshe, 188 F.3d 1090, 1096 (9th Cir. 1999)).

5. “A reorganization plan resembles a consent decree

and therefore, should be construed basically as a contract.”

63a

Appendix C

Hillis Motors, 997 F.2d at 588. California law directs this

Court “to interpret the Plan so ‘as to give effect to the

mutual intention of the parties as it existed at the time

of contracting’” and also provides that ambiguities in the

Plan are to be “construed against the drafter” here, the

Debtor. Captain Blythers, 311 B.R. at 536 citing Cal. Civ.

Code § 1636 and Ponder v. Blue Cross of Southern Cal.,

145 Cal. App. 3d 709, 718 (1983).

6. In the Ninth Circuit, property of the estate that

vested in the reorganized debtor upon confirmation revests

in the estate when the case is converted to chapter 7 where

[1] the plan provides for the distribution of future proceeds

of an asset to creditors and [2] the bankruptcy court

retains broad powers to supervise the implementation of

the plan. Pioneer, 264 F.3d at 807 citing Hillis Motors, 997

F.2d at 589 (concluding that assets revested in estate after

confirmation because, although plan did not explicitly so

provide, plan’s clear purpose was to pay back creditors,

and plan stated that bankruptcy court would be closely

involved in administering Chapter 11 estate); Cobalis, 517

B.R. at 173; Captain Blythers, 311 B.R. at 535.

7. Neither the object nor policy of the Bankruptcy

Code would be furthered by creating a different rule,

and a different result, where the chapter 11 debtor is an

individual rather than an entity. There is no logical basis

to reward a reorganized individual debtor whose material

default under a confirmed plan leads to conversion of the

case to chapter 7 pursuant to Bankruptcy Code section

1112(b)(4)(N).

64a

Appendix C

8. In this District, if a chapter 11 case converts to

chapter 7 post-confirmation and the plan of reorganization

at issue does not address what happens to property dealt

with in the plan upon conversion, then Local Bankruptcy

Rule 3020-1(d) operates as a default plan provision and

provides the default rule that “… the property of the

reorganized debtor … that has not been distributed

under the plan shall be vested in the chapter 7 estate,

except for property that would have been excluded from

the estate if this case had always been one under chapter

7.” See Local Bankruptcy Rule 3020-1(d); In re Kenny G

Enter., LLC, (B.A.P. 9th Cir., Aug. 20, 2014), 2014 WL

4100429, *13 (quoting LBR 3020-1(d) and determining

that “[n]o provision was made in the Plan for anything

other than this default rule. Accordingly, KGE’s assets

became property of the chapter 7 estate upon conversion

of the case”).

9. Because this Court retained jurisdiction to:

Determine the Debtor’s Adversary Proceedings

prior to the distribution of funds to 99% of the

secured claims and 97% of the unsecured claims;

Adjudicate requests for relief from the continued

automatic stay (even as to property of the estate

revested in the Debtor); and

Determine whether the Debtor was entitled to a

discharge,

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Appendix C

the Plan gave “the bankruptcy court broad powers to

oversee implementation of the plan” under Pioneer.

Because the Plan provided that relief relating to the Plan

could not be sought in state court prior to the entry of a

final decree, this Court had exclusive jurisdiction to grant

relief relating to the Plan.

10. In the Ninth Circuit, upon conversion to chapter

7 after confirmation of a chapter 11 plan, property dealt

with in the plan will vest in the chapter 7 estate if there

is continuous ongoing jurisdiction over a debtor and

estate assets and if the plan contained explicit provisions

regarding the use of estate property to pay creditors. See,

Pioneer, 264 F.3d at 807.

10. Because this Court has had continuous ongoing

jurisdiction over the Debtor and property of the estate and

the Plan contains specific provisions that rent proceeds

from the Rental Properties were to be used to fund

payments under the Plan, and that any surplus funds were

to be distributed first to holders of allowed unsecured

claims before reverting to the Debtor, the Plan includes

specific provisions requiring the Debtor to administer the

Rental Properties and her litigation claims for the benefit

of the creditors property of the chapter 11 estate vests in

the chapter 7 estate under Pioneer.

11. As both prongs of the test in Pioneer are satisfied,

and because the Plan did not address what happens to

estate property upon a post-confirmation conversion,

Local Bankruptcy Rule 3020-1(d) operates as a default

plan provision is applicable and any property of the

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Appendix C

reorganized Debtor that was not distributed under the

Plan vests in the chapter 7 estate.

12. The Calabasas Property, the Camarillo Property

(and rents derived therefrom) and the Carmel Property

(and the rents derived therefrom) are property of the

chapter 7 estate.

13. The Sale Proceeds from the sale of the Henderson

Property are property of the chapter 7 estate.

14. The Debtor’s litigation claims, including those

asserted in the Adversary Proceedings, are property of

the chapter 7 estate.

15. Under 11 U.S.C. § 542(a), an entity in possession,

custody, or control of property of the estate “shall deliver

to the trustee, and account for, such property or the value

of such property, unless such property is of inconsequential

value to the estate.”

16. Because the Camarillo Property (and rent

proceeds derived therefrom) is not “of inconsequential

value or benefit to the estate”, the Camarillo Property

and all rent proceeds derived therefrom must be turned

over to the Trustee. See 11 U.S.C. § 542(a).

17. Because the Carmel Property (and rent proceeds

derived therefrom) is not “of inconsequential value or

benefit to the estate”, the Carmel Property and all rent

proceeds derived therefrom must be turned over to the

Trustee. 11 U.S.C. § 542(a).

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Appendix C

18. Because the Sale Proceeds from the sale of the

Henderson Property are not “of inconsequential value or

benefit to the estate,” property of the chapter 7 estate;

accordingly, the Debtor shall turn over to the Trustee

the sum of $315,078.12. Even if the Debtor was no longer

in possession, custody or control of the Henderson Sale

Proceeds on the date the Trustee filed his Turnover

Motion, she is not relieved of the obligation to deliver to the

Trustee the value of the Sales Proceeds. 11 U.S.C. § 542(a);

Shapiro v. Henson, 739 F.3d 1198, 1201-02 (9th Cir. 2014)

(“In sum, the phrases ‘or the value of such property’ and

‘during the case’ [in section 542] evidence the trustee’s

power to move for turnover against an entity that does

not have possession, custody or control of property of the

estate at the time the motion is filed”).

19. Be c au se t he S a le P r oce ed s a r e not “of

inconsequential value or benefit to the estate”, the Sale

Proceeds in the Debtor’s possession as of the Conversion

Date (or the value of the Sale Proceeds as of the Conversion

Date to the extent the Debtor is no longer in possession

of the Sale Proceeds) must be turned over to the Trustee.

11 U.S.C. § 542(a).

19. Accordingly, by separate order, the Court will

grant the Turnover Motion as set forth in the order.

/s/

Martin R. Barash

United States Bankruptcy Judge

Date: March 31, 2020

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.