Ripon Self Storage, LLC v. Exchange Bank (In re Ripon Self Storage), BAR No. EC-10-1325-HKiD, No. EC-10-1326-HKiD (BAP 9th Cir., April 1, 2011).
In 2005, Ripon Self Storage ("Ripon") obtained a construction loan for more than 3 million dollars from the Exchange Bank (the "Bank") to develop a few acres of land into a storage facility. The loan was secured by a deed of trust on the property and an assignment of rents derived from that property, meaning that if Ripon defaulted on the terms of the loan, the Bank could take possession of the property for sale and receive the income the property was currently generating.
When the note became due, Ripon could not pay, and the Bank agreed to modify the terms to reduce the principal balance and extend the due date two years. Additionally, a second note was created for more than a million dollars, secured by deeds of trust on the personal property of Ripon's principal, Ted Madzey.
Ripon defaulted again, and when the Bank attempted to foreclose on the business property, Ripon filed a petition for Chapter 11 bankruptcy. During the proceeding, the Bank alleged that its interests were not adequately protected because, although the court had ordered Ripon to make monthly payments to the Bank, Ripon had failed to do so. Because of this, the Bank requested a relief from the automatic stay so that it could foreclose on Madzey's personal property. This request was granted, and the property was sold.
On appeal, Ripon claimed the court erred in granting the relief from the automatic stay, and that Ripon was entitled to damages as a result. The court held that Ripon was obligated to demonstrate that there was equity in the business property or that the business property was necessary for its effective reorganization in order to prevent the relief from stay. Because Ripon failed to do both, the court affirmed its order.
