Los Altos Car Wash Case
Nov 01, 2012OUTCOME: Chapter 11 plan confirmed
Summary of Los Altos Car Wash case At the Petition Date, the following claims encumbered the Car Wash Property: •Property Tax; Claim: $98,423.65 •Silvestre Trust; Claim: $510,413.55; Lien: first pri ... ority deed of trust •Murad Trust; Claim: $334,155.36; Lien: second priority deed of trust •Cruchley Trust; Claim: $882,620.00; Lien: third priority deed of trust • Hanmi Bank; Claim: $31,907; Lien: fourth priority lien against personal property The Car Wash property contains contaminated soil and groundwater that reduced the market value of the Car Wash. Since 2007, the previous owner (the party responsible for the contamination clean up) has been conducting remediation efforts at the Car Wash. Those remediation efforts still continue. The Debtor commenced this Chapter 11 case mainly to restructure secured claims. The Bankruptcy Code regards a secured claim as secured only to the extent of the value of property securing it. Given the contamination of the Car Wash, and because property values have fallen steeply over the last few years, Debtor aimed to reduce secured claims, and thus reduce monthly debt service. With this change, Debtor expected that his business income will cover his property expenses, his debt service, and his personal living expenses. The first step was procuring the appropriate professionals need to appraise the Car Wash. Through extensive research, Applicant was able to locate (i) Nancy Beresky, a hydrogeologist, to determine the costs required to reduce the contamination to acceptable levels, and (ii) Stephen Morse, a certified appraiser specializing in car washes. Given the specialized nature of soil and groundwater contamination, the appraisal process proved challenging. Applicant assisted communications between the professionals and the Debtor on an almost daily basis for months leading up to the valuation motion. On November 17, 2011, Debtor filed a motion for a Court order determining the value of the Car Wash to be $270,000.00 (“Valuation Motion”). See Document No. 64 on the Court’s docket. The Valuation Motion was supported by the reports of Ms. Beresky and Mr. Morse. To properly prepare for the Valuation Motion, Applicant spent significant time learning the scientific fundamentals supporting these reports. On November 30, 2011, the Murad Trust filed an opposition to the Valuation Motion. The Murad Trust argued that the value of the Car Wash was $770,000.00. In light of this creditor objection to the Valuation Motion, the Court set January 25, 2012 for an evidentiary hearing regarding the value of the Car Wash. Applicant represented the Debtor at the hearing on the Valuation Motion. Prior to the hearing, Applicant submitted critiques of the opposition’s appraisal and alleged value of the Car Wash. Applicant also prepared the Debtor’s professionals for scheduled depositions; however the secured creditor who noticed them never conducted them. At the January 25, 2012 evidentiary hearing, the Court determined the value of the Car Wash to be $770,000.00 for plan treatment purposes. Although the Debtor did not ultimately prevail at the valuation hearing (the Court adopted the opposition’s valuation), the representation was necessary and beneficial to Debtor’s case. Given the opinions and reports of Morse and Beresky, Debtor and Applicant expected that the environmental remediation issue would make the valuation much lower. In sum, Applicant was successful in obtaining Court orders determining the value of the Car Wash and Debtor’s residence. These orders allowed Debtor, through his Chapter 11 plan, to reduce secured claims of over $2,600,000.00 to approximately $1,500,000.00. (car wash secured claims reduced from over $1.8 million to approx $800K) Chapter 11 Plan confirmed in November 2012.
