In Re Palmdale Hills Property, LLC

An automatic stay imposed by 11 U.S.C. § 362 (a) bars actions that would diminish the estate of a debtor in bankruptcy (the first debtor). Therefore, if another (also a debtor in bankruptcy) wants to equitably subordinate the creditor claims of the first debtor, it must seek relief from stay from the first debtor’s home bankruptcy court. We affirm the judgment of the Bankruptcy Appellate Panel (BAP).

FACTS AND PROCEDURAL HISTORY

1. The Loans

Over several years, various Lehman entities entered into credit agreements with the Palmdale Hills, LLC entities. These agreements were secured by the properties Palmdale was developing, Palmdale’s personal property, and/or equity interests in the Palmdale entities. By 2008, Palm-dale owed Lehman approximately $649 million plus interest. Although three loans, the SunCal I Loan, the Ritter Ranch Loan, and the Mezzanine Loan, are the subject of this appeal, only the Ritter Ranch Loan is significant. The Ritter Ranch Loan originated from a credit agreement dated February 8, 2007 and is secured by liens on projects owned by Palmdale Hills Property, LLC and an equity interest in Palmdale Hills, LLC. As discussed below, this loan has two…