In re West Daniels Land Association, Inc., Bankruptcy Number: 09-32502 (Bankr.Utah 12/17/2009)

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In re: West Daniels Land Association, Inc., Chapter 11, Debtor.

Bankruptcy Number: 09-32502

United States Bankruptcy Court, D. Utah.

December 17, 2009.

MEMORANDUM DECISION

R. KIMBALL MOSIER, Bankruptcy Judge

This matter came before the Court on the 3^rd day of December 2009 on an emergency motion filed by the Town of Daniel, Utah, a Utah Municipal Corporation (Town). Douglas J. Payne of Fabian & Clendenin appeared on behalf of Town, Michael W. Baldwin of Michael Baldwin, PLC appeared on behalf of West Daniels Land Association, Inc. (Debtor). John Morgan appeared on behalf of the United States Trustee.

The Debtor commenced this Chapter 11 bankruptcy proceeding on November 10, 2009 (Petition Date). Two months prior to that, on September 9, 2009, Town obtained a state court order granting Town immediate use and occupancy to a parcel of real property (Required Property) owned by the Debtor, so that Town could construct a new culinary water system. Upon learning that Debtor had commenced this bankruptcy proceeding, Town filed an emergency motion for relief from stay (Relief From Stay Motion) in order to allow the Town to continue its occupancy and use of the Required Property.

The relief sought by Town is an order pursuant to §362(d)(1)¹ modifying the automatic stay to allow Town's continued use and occupation of a 7.71 acre parcel of real property located in Wasatch County (7.71 Acre Parcel of Land) pursuant to the terms of an Order Granting Motion for Immediate Occupancy (State Court Order) entered in the Fourth District Court in and for Wasatch County, State of Utah, Heber City Department (State Court) on September 9, 2009. In the alternative Town seeks an order finding that the automatic stay did not apply under § 362(b)(4).

Because the only defenses raised by Debtor to the Relief From Stay Motion are barred by the Rooker-Feldman doctrine which prevents this Court from reviewing state court judgments, and because Town has shown that good cause exists to grant the Relief From Stay Motion, this Court will modify the automatic stay to allow the Town to continue its use and occupancy of the Required Property in accordance with the provisions of the State Court Order.

FACTS

On September 9, 2009, the Fourth District Court in and for Wasatch County, State of Utah issued the State Court Order in civil number 090500369.² The State Court Order concerns the Required Property which is at the center of the dispute between the Debtor and Town. Some of the facts established in the State Court Order are as follows:

(1) Town is a municipal corporation located in Wasatch Country, State of Utah; (2) as of December 1, 2008, Town has taken on the duty to provide municipal water to Town's residents; (3) to that end, Town accepted a water system previously operated by Daniel Domestic Water Company; (4) Town has determined that the municipal drinking water system must be upgraded and improved to protect the health and safety of Town's residents; (5) in the State Court action, Town sought to condemn the Required Property belonging to the Debtor; (6) Town intends to construct a new 800,000 gallon concrete water tank, a new pumphouse, drill a new well, reroute water pipelines, enlarge and redesign existing access roads and acquire land as a spring protection zone; (7) to finance the water system improvements, Town applied for and received federal funds through the State Division of Drinking Water; (8) if the federal funds are not allocated by February 2010, the federal government will take the funds back; (9) without the order of immediate occupancy, it is likely that the State Division of Drinking Water will allocate the funds to another project.

The State Court Order reflects that the Debtor opposed the Town's motion for immediate occupancy arguing that the equities weigh against Town's immediate occupancy because Town failed to demonstrate that condemnation of the Required Property was necessary, Town already had a right of access to the Required Property, that the prior owner of the water system failed to provide regular maintenance to the system and left the system in a state of disrepair and Town knew of the state of disrepair when it acquired the system.

The State Court Order contains the following "Conclusions of Law" 1. At any time after the commencement of suit, and after giving notice to the defendant as provided in Utah Rules of Civil Procedure, the plaintiff may file a motion with the court requesting an order permitting the plaintiff to:

a. Occupy the premises sought to be condemned pending the action, including the appeal; and

b. To do whatever work on the premises that is required. UCA 78B-6-210(1).

2. To obtain immediate occupancy, the plaintiff must first make a prima facie showing of its authority to condemn. Specifically, the plaintiff must come forward with some evidence that:

a. The use to which the property is to be applied is a use authorized by law;

b. The taking is necessary for the use; and

c. Construction and use of the property sought to be condemned will commence within a reasonable time as determined by the court. UCA 78B-6-504(1).

3. Additionally, the plaintiff must make a prima facie showing of the requirements prerequisite to immediate occupancy. Specifically, the Court must take proof by affidavit or otherwise of:

a. The value of the premises sought to be condemned;

b. The damages that will accrue from the condemnation; and

c. The reasons for requiring speedy occupation. UCA 78B-6-510(2)(a).

4. The Court shall then "grant or refuse the motion according to the equity in the case and the relative damages that may accrue to the parties." UCA 78B-6-510(2)(b).

5. The Utah Supreme Court has held that "weighing the equities of an order of immediate occupancy is largely a discretionary function" to which the appellate courts give deference. Utah County v. Ivie, 2006 UT 33, P7.

6. The requirement that the plaintiff make only a prima facie showing of its authority to condemn and of the requirements for immediate occupancy "stems from appropriate deference to legislative action. . . .

7. The Town has made a prima facie showing that use of the 7.71 acres for construction of the water system improvements is authorized by law. . . .

8. There is some dispute as to whether construction of the water system improvements requires the condemnation of all 7.71 acres. However, the Town has made a prima facie showing that condemnation of at least some of this land is necessary for this purpose. . . .

9. The Town has shown that construction of the water system improvements will commence within a reasonable time.

10. According to the appraisers retained by the Town and the Association, the value of the land sought to be condemned is somewhere between $13,500 for the entire 7.71 acre parcel to $32,600.00 per acre. . . .

11. The reasons requiring immediate occupancy are compelling. . . .

12. If the Court refuses to grant an order of immediate occupancy, the Town will lose the opportunity to access federal funding for the project. . . .

13. Granting an order or immediate occupancy to occupy the land necessary to construct the water system improvements will not impose upon the Association any damages for which it will not be compensated once this case has been tried. The Town's authority to condemn property necessary to provide municipal services is clear. Subject to its constitutional duty to pay just compensation, the Town will ultimately occupy the land necessary to construct the improvements, either now or after trial. The value and extent of the taking will be determined at trial and the Association will be awarded the just compensation required by the constitution of the United States and this State.

14. The Court concludes that the equities weight in favor of immediate occupancy. . . .

In the Relief From Stay Motion before this Court, the Town is requesting relief from the automatic stay in order to continue with the construction of the culinary water system. The Debtor opposes the Town's Relief From Stay Motion arguing that Town acquired the State Court Order through inequitable conduct, that Town's Relief From Stay Motion stay should be denied because of Town's unclean hands, that construction of the well for drinking water on the Required Property violates Utah State law because the well is located within 100 feet of a landfill, that the Town acquired the water system from Daniel Domestic Water Company through a fraudulent transfer that left Daniel Domestic Water Company without the financial ability to satisfy any judgment against it, that Town's application for funding filed with the State Revolving Fund fails to disclose a known environmental problem, and that Town's filing with the Utah Drinking Water Board contains an inaccuracy because Town misstated facts regarding it's acquisition of all assets of Daniel Domestic Water Company. Noticeably absent from Debtor's response is any allegation that the Required Property is necessary to the Debtor for an effective reorganization or that the Debtor will suffer any material prejudice if relief from the automatic stay is granted.

At the hearing on the Relief From Stay Motion, Town introduced evidence showing that Town's present water storage system is deficient in many critical aspects and that Town had been cited by the Utah Department of Environmental Quality because of existing deficiencies in its present water storage system. In addition, evidence was introduced that the present water system is in danger of imminent failure, that the static water pressure readings are below safe and acceptable levels and that the dynamic water pressure capabilities are insufficient to support the Town's firefighting needs. Town introduced evidence that any delay in construction of the municipal drinking water system during the winter months might result in a "hard freeze" which would result in a delay of construction until spring. Evidence was also introduced by...