Financial Security Assurance, Inc. v. Days California Riverside Ltd. Partnership (In re Days California Riverside Ltd. Partnership)

Opinion by Judge NOONAN; Dissent by Judge SCHROEDER.

This case requires decision of a question hitherto undecided by us: whether in California the revenues of a hotel can, to any degree, remain, after bankruptcy, covered by a security agreement entered into before bankruptcy. We answer affirmatively.

In 1989, Days California Riverside Limited Partnership, Days California La Palma Limited Partnership and Chesterfield Century City Limited Partnership (collectively the Debtors) concluded virtually identical loan agreements with Security Pacific Commercial Mortgage Trust VII, which, in turn, assigned all its rights and interests to Financial Security Assurances, Inc. (FSA), the plaintiff here. The Debtors received $41 million. They made payments on their obligations until October 1, 1990. On March 1, 1991 they filed petitions in bankruptcy, seeking reorganization under Chapter 11. They continued to operate their hotels. In the fall of 1991 FSA moved in the bankruptcy court for adequate protection or segregation of the receipts of the hotels. The bankruptcy court denied the motion. In February 1992 FSA foreclosed. By this time the Debtors had accumulated approximately $700,000 in…

dissenting in part:

I respectfully dissent from that part of the majority opinion holding that on remand the Bankruptcy Court must segregate food and beverage receipts from room receipts. The issue was not litigated below and was raised sua sponte by this court for the first time at oral argument of the appeal. This circuit routinely declines to address on appeal issues not presented to the trial court, e.g., Han v. United States, 944 F.2d 526 , 527 n. 1 (9th Cir.1991); Mosher v. Kane, 784 F.2d 1385, 1391 (9th Cir.1986), overruled on other grounds, In re Washington Public Power, *378 823 F.2d 1349 (9th Cir.1987), especially when, as in this case, the issues turn on unresolved factual questions, Pacific Express, Inc. v. United Airlines, Inc., 959 F.2d 814, 819 (9th Cir.), cert. denied, — U.S. -, 113 S.Ct. 814 , 121 L.Ed.2d 686 (1992). I believe that we should decline to address the segregation issue.

In the post-argument briefing that we requested, the appellant, FSA, contends that if segregation is ordered, the segregation will not help Days Inn because the food and beverage services at the hotels operated at a loss. Days Inn must agree, because its only responsive argument has…