In re: James F. Bishay

FILED OCT 24 2012 [1] SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT [4] 5 In re: ) BAP No. CC-12-1143-TaMkH ) 6 JAMES F. BISHAY, ) Bk. No. 8:08-bk-11374-ES ) 7 Debtor. ) Adv. No. 8:10-ap-01142-ES ______________________________) 8 JAMES F. BISHAY, ) ) 9 Appellant, ) ) 10 v. ) M E M O R A N D U M1 ) 11 RICHARD A. MARSHACK; ) JP MORGAN CHASE, ) 12 ) Appellees. ) 13 ______________________________) 14 Argued and Submitted on September 21, 2012 at Pasadena, California [15] Filed - October 24, 2012 [16] Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Erithe A. Smith, Bankruptcy Judge, Presiding ________________________________ [19] Appearances: Alan Leigh Armstrong for Appellant James F. 20 Bishay; Donald W. Sieveke for Appellee Richard A. Marshack 21 __________________________________ 22 Before: TAYLOR,2 MARKELL, and HOLLOWELL, Bankruptcy Judges. [24] 25 1 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 26 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. [2] Hon. Laura S. Taylor, Bankruptcy Judge Southern 28 District of California, sitting by designation. 1 The appellant, Joseph Bishay, is the beneficiary of a trust 2 deed recorded against the debtor’s real property. He appeals 3 from the bankruptcy court’s judgment after trial determining that 4 his trust deed was junior to another subsequently recorded trust 5 deed. The bankruptcy court based its decision first on the 6 finding that there was a contractual agreement to subordinate. 7 The bankruptcy court reached this determination notwithstanding 8 that a written subordination agreement was never introduced into 9 evidence. The bankruptcy court, alternatively, based its ruling 10 on an oral determination that equitable subrogation applied.3 11 The appellant only raised issues relating to the contractual 12 subordination determination in his statement of issues on appeal 13 and in his opening brief. He discussed equitable subrogation 14 only in his reply brief. 15 After a careful consideration of the parties’ briefs and 16 oral argument, review of the record provided, and independent 17 analysis and application of the law, we hold that the appellant 18 waived his right to dispute that equitable subrogation applied 19 when he failed to raise this issue at any point on appeal prior 20 to his reply, and, thus, we affirm on this basis. We further [3] In the record, the parties use both the term “equitable 22 subordination” and the term “equitable subrogation.” Equitable subordination in the bankruptcy context refers to 11 U.S.C. 23 § 510(c). It requires misconduct and subordination as a result thereof. 4 Collier on Bankruptcy ¶ 510.05[2], p. 510-18 (Alan N. 24 Resnick & Henry J. Sommer, eds., 16th ed. 2012). The record evidences that the parties here reference the state law theory of 25 equitable subrogation involving effective subordination where, under certain circumstances, a lender pays an existing 26 lienholder’s claim and assumes (is subrogated to) the senior lender’s priority. Miller & Starr, California Real Estate Third 27 Edition, § 11:115, p. 11-355. The Panel will utilize the term “equitable subrogation” herein and will not reference “equitable 28 subordination.” - 2 - 1 affirm on the grounds that the bankruptcy court correctly found 2 that an actual agreement to subordinate existed, that it bound 3 appellant, and that it was unnecessary for the bankruptcy court 4 to determine the complete terms of the subordination agreement in 5 connection with its ruling. 6 FACTS 7 On February 10, 2006, debtor James F. Bishay (the “Debtor”) 8 purchased a house in Huntington Beach, California (the 9 “Property”) and acquired title as his sole and separate property. 10 On February 14, 2006, his wife, Deborah Westfield, also known as 11 Deborah Bishay, quitclaimed her interest in the Property to the 12 Debtor. On this same date, Citimortgage recorded a trust deed 13 against the Property securing an obligation in the original 14 principal amount of $1,000,000. Thereafter, on April 5, 2006, 15 Citibank recorded a second trust deed securing an obligation in 16 the original principal amount of $169,990. 17 On December 27, 2006, for no consideration, the Debtor 18 transferred the Property to the Bishay Irrevocable Trust, 19 James F. Bishay as Trustee (the “Bishay Trust”). On February 15, 20 2007, the Debtor, in his capacity as trustee of the Bishay Trust, 21 executed and delivered a note in the original principal amount of 22 $320,000 in favor of his brother and appellant, Joseph Bishay 23 (“Joseph”4) and The Rock of Ages, a suspended California 24 corporation owned or controlled by Joseph (the “Bishay Note”). [4] For the purposes of clarity and simplicity, the 26 appellant will hereinafter be referred to as “Joseph.” We intend no disrespect by this informality, but hope to avoid the 27 confusion that could result from having both a debtor and a defendant with the last name Bishay and first names beginning 28 with a “J”. - 3 - 1 Joseph and Rock of Ages recorded a trust deed (the “Bishay Trust 2 Deed”) securing the Bishay Note on March 16, 2007. The Bishay 3 Trust Deed, thus, was subordinate to both the Citibank and 4 Citimortgage trust deeds, and Joseph knew this was the case. 5 On November 6, 2007, and again for no consideration, the 6 Bishay Trust transferred the Property to the Alpha and Omega 7 Irrevocable Trust, Deborah Westfield as Trustee. On February 4, 8 2008, the Debtor’s mother, Marsil Bishay, now acting as trustee 9 of the Alpha and Omega Irrevocable Trust (“Alpha & Omega Trust”), 10 borrowed $1,260,000 from Washington Mutual Bank (“WaMu”) and used 11 the proceeds in significant part to repay the Citibank and 12 Citimortgage loans. On April 1, 2008, WaMu recorded a deed of 13 trust (the “WaMu Trust Deed”) securing the note evidencing this 14 loan. There is no dispute that the parties to this transaction 15 intended that the WaMu Trust Deed create a first priority lien 16 against the Property. 17 On March 22, 2008, the Debtor filed his petition and 18 initiated this chapter 7 bankruptcy. 19 On September 1, 2008, Richard A. Marshack, the chapter 7 20 trustee (“Trustee”), filed adversary proceeding 8:08-ap-01338 ES 21 seeking to avoid the transfers of the Property to the Bishay 22 Trust and to the Alpha & Omega Trust as fraudulent conveyances. 23 The Trustee obtained a judgment avoiding these transfers and 24 preserving the transferred asset for the benefit of the estate on 25 April 19, 2010. 26 The Trustee initiated the subject adversary proceeding on 27 March 19, 2010. The original complaint is not part of the record 28 on appeal, but we have taken judicial notice of the bankruptcy - 4 - 1 court docket and various documents filed through the electronic 2 docketing system. See O’Rourke v. Seaboard Sur. Co. (In re E.R. 3 Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989); Atwood v. 4 Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227 , 233 n.9 5 (9th Cir. BAP 2003). The docket in this proceeding evidences 6 that the Trustee originally named only WaMu and Marsil Bishay as 7 trustee of the Alpha & Omega Trust as defendants, but also 8 included 10 Doe defendants. Thereafter, he added JP Morgan Chase 9 Bank, National Association, successor in interest to WaMu 10 (“Chase”), California Reconveyance Company (“Cal Recon”), as the 11 Trustee named in the WaMu Trust Deed, The Rock of Ages, and 12 Joseph as defendants in place of Does 1 through 4. 13 The bankruptcy court eventually entered a summary judgment 14 order adverse to Marsil Bishay as Trustee of the Alpha & Omega 15 Trust and determined that she had no interest in the Property. 16 The Trustee obtained a default judgment resolving the claims 17 against The Rock of Ages and entered into a settlement agreement 18 with Chase. The resolution of the Chase claims also resolved all 19 claims against Cal Recon, as Cal Recon was sued only as the 20 trustee under the WaMu Trust Deed. 21 Thus, as of the trial date, the only unresolved issues 22 pertained to Joseph’s claim based on the alleged priority of the 23 Bishay Trust Deed.5 Originally, the Trustee also objected to 24 Joseph’s claim, but the Trustee abandoned this issue before [5] The priority dispute was not directly discussed in any 26 pleading, but the parties clearly contemplated this as an issue in a Pre-Trial Order, and it apparently arose from the 27 generalized request in the amended complaint that the bankruptcy court determine the respective interests of the parties in and to 28 the Property. - 5 - 1 trial. 2 Prior to the trial, the Trustee and Joseph entered into a 3 Pre-Trial Order and agreed, among other things, on the following 4 facts: 5 18. Joseph Bishay testified in his deposition that on an unknown date, he 6 subordinated his trust deed to the Washington Mutual Deed of trust. The subordination 7 agreement was not recorded and has not been found. [8] . . . [9] 21. Joseph Bishay has testified that he 10 understood that his deed of trust was in second position, behind the new deed of trust 11 obtained by Marsil Bishay, in favor of Washington Mutual. 12 22. Prior to the recordation of his deed of trust, Joseph Bishay understood that Marsil 13 Bishay intended to obtain a loan against [the Property], and that such deed of trust would 14 be in first position. 23. Marsil Bishay negotiated and obtained 15 the subordination of Joseph Bishay’s deed of trust to the new deed of trust issued to WAMU 16 against the [Property]. 17 Pre-Trial Order, Dkt. 62, at 4. 18 The Pre-Trial Order also included a judicial requirement 19 that the parties provide direct testimony (exclusive of adverse 20 or rebuttal testimony) only by declaration. Finally, the Pre21 Trial Order established the witnesses to be called at trial and 22 the exhibits to be introduced at trial. Joseph’s exhibits were 23 the Bishay Trust Deed, the WaMu Trust Deed, and an equity 24 purchase agreement dated March 8, 2007. The Trustee submitted a 25 trial brief; Joseph did not. Neither party submitted declaratory 26 evidence. 27 The bankruptcy court held the trial on February 21, 2012. 28 At trial, the Trustee rested after introducing the Bishay Trust - 6 - 1 Deed and the WaMu Trust Deed into evidence. Joseph’s counsel, 2 after attempting to call Joseph as a witness, acknowledged that 3 he was bound by the Pre-Trial Order and could not introduce 4 testimonial evidence at trial. Consequently, Joseph never 5 testified. Joseph’s counsel also did not seek to admit any 6 documentary evidence. The Trustee then relied on the agreed 7 facts of the Pre-Trial Order and requested judgment in his favor. 8 The Trustee argued two alternative theories - first, that 9 the Bishay Trust Deed was subordinate to the WaMu Trust Deed 10 because Joseph contractually agreed to subordinate the Bishay 11 Trust Deed, and, second, that the doctrine of equitable 12 subrogation operated to grant seniority to the WaMu Trust Deed. 13 In opposition, counsel for Joseph offered a limited argument that 14 the terms of the subordination agreement were unknown and that 15 WaMu was negligent. 16 The bankruptcy court recited the admitted facts in the Pre17 Trial Order and made an oral finding that the admitted facts 18 provided adequate evidence of intent to subordinate and that, as 19 Joseph advanced no new evidence, a judgment finding that the WaMu 20 Trust Deed had priority over the Bishay Trust Deed was 21 appropriate. The bankruptcy court stated that: 22 . . . under the admitted facts and given that there is no counter evidence, either 23 factually or legally, then this Court feels comfortable in making a finding consistent 24 with the trial briefs submitted that there was a subordination agreement that was in 25 effect at the time the Washington Mutual loan was made and that the intent was that the 26 Washington Mutual loan would, in fact, be senior to the [Bishay Trust Deed]. [27] 28 Trial Tr. (Feb. 21, 2012) at 10:14-21. - 7 - 1 The bankruptcy court also made an alternative oral finding 2 that: 3 the Plaintiff has also presented evidence sufficient to support a finding [] that the 4 doctrine of equitable subordination should apply as well. So, judgment will be in favor 5 of the Plaintiff. [6] Id. at 13:3-6 . 7 Finally, the bankruptcy court stated its ultimate finding 8 that, “under either theory, the Court finds in favor of the 9 Plaintiff, Richard Marshack that there was a subordination 10 agreement.” Id. at 12:20-22 . 11 On March 2, 2012, the bankruptcy court entered a separate 12 written Judgment After Trial which stated: 13 After considering the evidence and hearing argument, and for the reasons set forth in 14 the Court’s oral findings, IT IS HEREBY ADJUDGED: 1) Judgment in favor of the 15 Plaintiff and against Defendant JOSEPH BISHAY. 2) The [Bishay Trust Deed] is hereby 16 declared fully subordinate to the [WaMu Trust Deed]. [17] 18 Judgment After Trial, Dkt. 86, at 2:2-14. 19 Joseph timely appealed the bankruptcy court’s Judgment After 20 Trial and identified only one issue: “Did the bankruptcy court 21 err in deciding that the [Bishay Trust Deed] was fully 22 subordinate to the [WaMu Trust Deed] based on a Subordination 23 Agreement that has not been found, without making a finding as to 24 the wording or contents of that subordination agreement?” 25 Appellant’s Statement of Issue on Appeal (April 2, 2012) at 2. 26 As the Trustee points out in his opening brief, Joseph failed to 27 raise, as an issue on appeal, the bankruptcy court’s alternative 28 finding that the Bishay Trust Deed was subordinate to the WaMu - 8 - 1 Trust Deed based on the doctrine of equitable subrogation. 2 Joseph first addressed the equitable subrogation issue in his 3 reply brief. 4 JURISDICTION 5 The bankruptcy court had jurisdiction under 28 U.S.C. 6 §§ 1334 and 157(b)(2)(K). Judgment was entered on the issue of 7 the full subordination of the Bishay Trust Deed to the WaMu 8 Trust Deed. The judgment is final because the judgment fully and 9 finally disposed of the priority dispute, the only dispute then 10 remaining in this adversary proceeding. See Kashani v. Fulton 11 (In re Kashani), 190 B.R. 875, 882 (9th Cir. BAP 1995). Because 12 the judgment underlying Joseph’s appeal is final, we have 13 jurisdiction pursuant to 28 U.S.C. § 158 . 14 ISSUES 15 A. Whether Joseph waived his right to appeal the 16 bankruptcy court’s application of equitable subrogation. 17 B. Whether the bankruptcy court erred, as a matter of law, 18 by finding subordination without first determining all the terms 19 and conditions of subordination. 20 C. Whether the bankruptcy court erred, as a matter of 21 fact, by finding the Bishay Trust Deed fully subordinate to the 22 WaMu Trust Deed. 23 STANDARD OF REVIEW 24 We review "the bankruptcy court's conclusions of law de novo 25 and factual findings for clear error." Clear Channel Outdoor, 26 Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 32 (9th Cir. BAP 27 2008)(citations omitted). A factual determination is clearly 28 erroneous if the appellate court, after reviewing the record, has - 9 - 1 a definite and firm conviction that a mistake has been committed. 2 Anderson v. Bessemer City, 470 U.S. 564, 573 (1985). 3 We review a bankruptcy court's interpretation of California 4 law de novo in order to determine if it correctly applied the 5 substantive law. Kipperman v. Proulx (In re Burns), 291 B.R. 6 846, 849 (9th Cir. BAP 2003); Astaire v. Best Film & Video Corp., [7] 116 F.3d 1297, 1300 (9th Cir. 1997)(issues of state law are 8 reviewed de novo). Mixed questions of law and fact are also 9 reviewed de novo. Murray v. Bammer (In re Bammer), 131 F.3d 788 , 10 792 (9th Cir. 1997). "A mixed question of law and fact occurs 11 when the historical facts are established; the rule of law is 12 undisputed . . . and the issue is whether the facts satisfy the 13 legal rule." Id. 14 DISCUSSION 15 A. Joseph Waived His Right To Appeal The Bankruptcy Court’s Determination Based On Equitable Subrogation. [16] 1. The Judgment Based On Equitable Subrogation Was Final. [17] 18 Joseph argues that he was not obligated to appeal from the 19 bankruptcy court’s determination that the theory of equitable 20 subrogation resulted in a loss of the priority of his trust deed. 21 He argues, thus, that he did not waive his right to appeal this 22 determination. He bases his argument on the fact that the post 23 trial judgment “does not mention equitable subrogation.” 24 Appellant’s Reply Brief (June 21, 2012) at 1. He apparently 25 claims that because the written Judgment After Trial did not 26 expressly state that subordination was granted alternatively on 27 the theory of equitable subrogation, that a judgment was not 28 rendered on that theory. - 10 - 1 In the absence of an order allowing an interlocutory appeal, 2 an appellant may only appeal to a Bankruptcy Appellate Panel from 3 final judgments, orders, or decrees of a bankruptcy judge. [4] 28 U.S.C. § 158 (a). To become final, the decision, order, or 5 decree must end the litigation or dispose of complete claims of 6 relief. In re Kashani, 190 B.R. at 882 . The Ninth Circuit takes 7 a flexible approach to determining the finality of a judgment or 8 order such that even a minute order can be a final, appealable 9 order if it: “fully adjudicates the issues and clearly evidences 10 the court’s intent that the order be the court’s final act.” 11 Key Bar Invs. v. Cahn (In re Cahn), 188 B.R. 627, 629 (9th Cir. 12 BAP 1995). A court’s intent is evidenced by: “a clear and 13 unequivocal manifestation by the trial court of its belief that 14 the decision made, so far as it is concerned, is the end of the 15 case.” Brown v. Wilshire Credit Corp. (In re Brown), 484 F.3d 16 1116, 1122 (9th Cir. 2007) (citation omitted). This flexible 17 approach is intended to ensure that a case does not make “two 18 complete trips through the appellate process.” Lewis v. Law 19 Offices of Nicholas A. Franke (In re Lewis), 113 F.3d 1040 , 1043 20 (9th Cir. 1997). 21 Here, the bankruptcy court’s written Judgment After Trial 22 does not specifically delineate the individual legal theories on 23 which it is based. However, the judgment does incorporate by 24 express reference, the “reasons set forth in the Court’s oral 25 findings.” Judgment After Trial at 2:2-3. The use of the plural 26 “reasons” indicates more than one basis for the judgment. The 27 trial transcript evidences that those reasons specifically 28 included the bankruptcy court’s oral finding that “the doctrine - 11 - 1 of equitable subordination should apply as well.” Trial Tr. at 2 13:5. Indeed, the bankruptcy court made this particular 3 alternative finding “to make a complete record in the event there 4 is an appeal.” Id. at 11:1-2. Therefore, the oral findings 5 clearly evidence the bankruptcy court’s intent to grant final 6 judgment in favor of the Trustee on the alternative basis of 7 equitable subrogation. 8 Joseph’s anti-finality argument is not only inconsistent 9 with the record, it is also inconsistent with his position on 10 appeal. The Judgment After Trial did not delineate any specific 11 theory on which relief was granted. Notwithstanding this 12 silence, Joseph chose to appeal based on the assumption that the 13 judgment involved a contractual determination. Nothing in the 14 express language of the Judgment After Trial itself, however, 15 supports the assertion that this basis for relief was the sole 16 basis for relief or even a basis for relief. The Judgment After 17 Trial was equally non-specific and silent as to the contract 18 based subordination claim. 19 For these reasons, we conclude that the bankruptcy court 20 granted a final judgment in favor of the Trustee on the 21 alternative theory of equitable subrogation. 22 2. Joseph Failed To Timely and Appropriately Raise The Equitable Subrogation Issue On Appeal. [23] 24 An appellant is required to serve and file a statement of 25 issues on appeal. Fed. R. Bankr. P. 8006. Issues not included 26 in the statement of issues may be deemed waived. Woods v. Pine 27 Mountain, Ltd. (In re Pine Mountain, Ltd.), 80 B.R. 171 , 173 28 (9th Cir. BAP 1987) (holding that appellant waived the issue of - 12 - 1 bankruptcy court’s refusal to consider parol evidence when the 2 issue was not included in the statement of issues). An appellant 3 must also raise and argue an issue in its opening brief or the 4 issue will be waived. Seven Words LLC v. Network Solutions, [5] 260 F.3d 1089, 1097 (9th Cir. 2001); see also McLain v. Calderon, [6] 134 F.3d 1383 , 1384 n.2 (9th Cir. 1998) (issue mentioned in 7 statement of issues, but not discussed in brief is considered 8 waived). Further, an argument waived by the failure to raise it 9 in an appellant’s opening brief cannot be raised for the first 10 time in the appellant’s reply brief. Alaska Ctr. For Env’t v. 11 United States Forest Serv., 189 F.3d 851 , 858 n.4 (9th Cir. 12 1999). 13 Here, Joseph’s statement of issues does not mention 14 equitable subrogation. The only issue raised is, “Did the 15 bankruptcy court err in deciding that the [Bishay Trust Deed] was 16 fully subordinate to the [WaMu Trust Deed] based on a 17 Subordination Agreement that has not been found, without making a 18 finding as to the wording or contents of that subordination 19 agreement?” Appellant’s Statement of Issue on Appeal at 2. 20 Correspondingly, Joseph’s opening brief discusses the same single 21 issue, slightly re-phrased as, “The Subordination Agreement has 22 not been found. Was it error to make that decision without 23 determining the wording of that subordination agreement?” 24 Appellant’s Opening Brief (May 21, 2012) at 1. Again, no mention 25 is made of equitable subrogation. 26 The Trustee raised this omission in his brief. Thus, 27 Joseph, in his reply brief, eventually contended that the 28 bankruptcy court erred in granting judgment on a theory of - 13 - 1 equitable subrogation because the elements of equitable 2 subrogation were not met. Because Joseph raises this issue for 3 the first time in his reply brief, he waived his right to appeal 4 the bankruptcy court’s judgment based on this alternative theory. 5 For this reason alone, the trial court’s judgment must stand. 6 B. The Bankruptcy Court Did Not Err, As A Matter Of Law, By Finding Subordination Without First Determining All The 7 Terms And Conditions Of Subordination. 8 Joseph contends that the subordination agreement at issue 9 cannot be located and, therefore, that its terms are unknown. 10 Joseph then argues that when the terms of a subordination 11 agreement are not known, the subordination agreement is void. 12 In support of this position, Joseph briefly identifies cases 13 that he alleges require contractual certainty in the 14 subordination agreement context. This case law, however, is 15 either distinguishable or declarative of a non-controversial rule 16 of law that is consistent with the bankruptcy court’s legal 17 determinations. 18 Joseph cites to Resolution Trust Corp v. BVS Dev., Inc., [19] 42 F.3d 1206 (9th Cir. 1994) for its statement that “the law is 20 well settled that rights under an agreement of subordination 21 extend to and are limited strictly by the express terms and 22 conditions of the agreement.” Id. at 1214. This point is well 23 taken, but Joseph fails to even suggest how his admitted 24 agreement to subordinate is in any way less than an agreement to 25 full subordination to the WaMu Trust Deed. 26 Similarly, Joseph cites to Weddington Prods., Inc. v. Flick, [27] 60 Cal.App.4th 793 (1998) (citing White Point Co. v. Herrington, [28] 268 Cal.App.2d 458 (1968)) and Roffinella v. Sherinian, - 14 - [1] 179 Cal.App.3d 230, 239 (1986) to make the point that 2 subordination provisions found to be uncertain, indefinite, and 3 incapable of ascertainment by reference to an objective standard, 4 have been deemed void for the uncertainty of a material 5 provision. Id. at 817.6 But again, Joseph fails to identify any 6 point of uncertainty related to his agreement to subordinate, 7 much less a material one. 8 Lastly, Joseph relies on Krasley v. Superior Court, [9] 101 Cal.App.3d 425, 430 (1980) to suggest that when a 10 subordination agreement is uncertain, trade usage and custom 11 cannot be used to fill the gaps. The facts of Krasley, however, 12 are far from the facts here. The trade usage discussion arose in 13 another context and pertained to the court’s determination that a 14 document entitled a “counter counter offer” could not be treated 15 as an acceptance of a prior offer. Id. The subordination 16 discussion in Krasley related to an alternative basis for 17 concluding that a contract did not arise. The Krasley court 18 found that inclusion of the term “Seller to subordinate to a 19 Construction Loan . . .” was not sufficiently specific to bind 20 the elderly and ill sellers who responded only with a counter 21 offer. Id. Joseph, in contrast, knew the loan as to which his 22 subordination agreement applied. 23 In summary, Joseph’s cases all concern the contractual 24 requirement of certainty, in some cases in the subordination 25 agreement setting. These rules generally apply to deny [6] Neither Weddington Prods. nor White Pointe Co. are 27 directly applicable on the facts. They both refer to subordination agreement cases, but do not analyze the 28 enforceability of a subordination clause. - 15 - 1 enforcement of a subordination agreement where a party agreed to 2 subordinate in the future to an unknown amount of additional 3 security and where material deal terms of that future loan are 4 unknown. The certainty requirements then operate to limit the 5 scope of an otherwise open ended agreement to only the amount 6 that was within the subordinating parties’ objective intent at 7 the time of contracting. Here, Joseph never states that his 8 objective intent was anything other than full subordination. 9 Under California law, contract formation requires mutual 10 consent of the parties. Cal. Civ. Code § 1561 ; 1 Witkin Summary 11 of California Law (10th ed. 2005) Contracts, § 116 p. 155. Such 12 mutual consent may be determined based on the reasonable meaning 13 of the words and actions of the parties. Weddington Prods., [14] 60 Cal.App.4th at 811 . The contract’s terms must be certain in 15 material respects, but the existence of minor areas of 16 disagreement will not render the contract void and entirely 17 unenforceable. Id. at 811-12 . Consistent with the general 18 requirements of California law in the area of contracts, a 19 subordination agreement must be interpreted to enforce the 20 objective intent of the parties. Bratcher v. Buckner, [21] 90 Cal.App.4th 1177, 1186 (2001). 22 Courts are cautious when asked to enforce agreements to 23 subordinate to uncertain and future financing of unknown terms. 24 See Roskamp Manley Assocs., Inc. v. Davin Dev. & Inv. Corp., [25] 184 Cal.App.3d 513 (1986). A subordination agreement, 26 notwithstanding, may be enforceable even in the absence of 27 absolute certainty as to all contract terms. In Resolution Trust 28 Corp., the subordinating party was a seller who took back a loan - 16 - 1 and security from the buyer and also agreed to subordinate to 2 future construction financing. 42 F.3d at 1210. The Resolution 3 Trust Corp. court found the underlying subordination agreement 4 enforceable despite some lack of certainty as to terms of this 5 financing at the time of subordination. Id. at 1214. See also 6 Int’l Mortg. Bank v. Eaton, 39 Cal.App. 39 (1918) (holding that 7 an executed agreement to subordinate was enforceable where there 8 was no specification of interest rate, subordinated amount, or 9 use of the future senior loan proceeds.) In Krasley, in 10 contrast, the court found no contract and no subordination 11 agreement where the agreement was entirely open-ended. [12] 101 Cal.App.3d at 431 . In short, there are situations where the 13 law will not enforce a subordination agreement because the terms 14 are so uncertain that the court cannot find a meeting of the 15 minds. California law, however, does not require 100% certainty. 16 Joseph’s situation is not analogous to the Krasley facts. 17 The bankruptcy court determined as a factual matter that Joseph’s 18 testimony evidenced an objective intent to subordinate the Bishay 19 Trust Deed to the WaMu Trust Deed. It is clear that Joseph knew 20 that the WaMu loan would be used to repay existing loans secured 21 by already senior trust deeds. Thus, this determination leaves 22 no real ambiguity regarding its scope. 23 And, perhaps more importantly, Joseph never specifies any 24 unknown feature of this subordination. Having conceded that he 25 subordinated his trust deed, the burden shifted to Joseph to 26 specify any area where he did not agree to subordination and 27 where, as a result, subordination cannot be required. He could 28 not remain silent and prevail. - 17 - 1 Therefore, the bankruptcy court did not err in finding that 2 Joseph subordinated the Bishay Trust Deed to the WaMu Trust Deed 3 even though he alleges that unspecified terms of the 4 subordination agreement remain unclear. Enough is known to make 5 clear that subordination occurred, and there is no evidence of a 6 material term in dispute. 7 C. The Bankruptcy Court Did Not Err, As A Matter Of Fact, By Finding The Bishay Trust Deed Fully Subordinate To The WaMu 8 Trust Deed. 9 The Pre-Trial Order describes the relevant trial issues of 10 fact as: 11 3. Whether Joseph Bishay has agreed that his deed of trust is subordinate to that of 12 the Washington Mutual Bank deed of trust. 4. Whether Joseph Bishay agreed to 13 subordinate his deed of trust to the Washington Mutual Deed of trust obtained by 14 Marsil Bishay against the Subject Property. 15 Pre-Trial Order at 6. 16 It also contained stipulated facts that evidence an 17 agreement to subordinate. Admitted facts which are agreed upon 18 in a pre-trial order give rise to an inference that must be 19 rebutted by opposing evidence. Harding v. Hall (In re Hall), [20] 2006 WL 6810950 , *2 (9th Cir. BAP Aug. 14, 2006); see also 21 Jauregui v. City of Glendale, 852 F.2d 1128 (9th Cir. 1988) 22 (recognizing that facts admitted by the defendant in a pre-trial 23 order established plaintiff's prima facie case which gave rise to 24 a presumption requiring evidentiary rebuttal). Joseph fails to 25 identify any alleged limitation as to the extent of his admitted 26 agreement to subordinate. Thus, the bankruptcy court did not err 27 in finding that Joseph entirely subordinated the Bishay Trust 28 Deed based on the admitted facts in the Pre-Trial Order. - 18 - 1 On appeal, Joseph does not directly contest any of the 2 bankruptcy court’s findings of fact. Indeed, as they are based 3 on his stipulations in the Pre-Trial Order, it is difficult to 4 see how he could do so. As the Trustee correctly points out, 5 however, Joseph’s statement of the issue on appeal can be 6 interpreted in a number of ways, and Joseph may argue that the 7 bankruptcy court erred in finding that he fully rather than 8 partially subordinated. 9 In particular situations, where a subordination agreement 10 relates to an unknown future indebtedness, the subordinating 11 party may be held to have only partially subordinated to the 12 amount that was within its objective intent at the time of 13 contracting. See generally Wells Fargo Bank v. Neilsen, [14] 178 Cal.App.4th 602, 615-17 (2009) (limiting subordination amount 15 to that which was within the objective intent of the 16 subordinating lender in a “circuity of liens” context). Here, 17 however, there is no ambiguity in the evidence; the bankruptcy 18 court relied on Joseph’s own testimony and agreement in its 19 determination that Joseph subordinated the Bishay Trust Deed and 20 was in second position behind the entirety of the WaMu Trust 21 Deed. 22 This ultimate fact is evidenced by Joseph’s admitted 23 testimony that: “ . . . he subordinated his trust deed to the 24 Washington Mutual Deed of trust,” (Pre-Trial Order at 4:11-12) 25 and that: “he understood that his deed of trust was in second 26 position behind the new deed of trust obtained by Marsil Bishay 27 in favor of Washington Mutual.” Pre-Trial Order at 4:18-20. 28 Thus, the bankruptcy court correctly found that subordination - 19 - 1 occurred. 2 It is also clear on this record that Joseph knew in 3 connection with this general agreement to subordinate that his 4 mother would use the WaMu Loan proceeds to pay off existing 5 senior liens and that WaMu would, thus, enjoy the same priority 6 over his lien that was enjoyed by the prior senior lenders. 7 Joseph offers no counter evidence. Therefore, the record 8 supports the bankruptcy court’s determination that Joseph 9 objectively intended to fully subordinate. Again, Joseph 10 advances no evidence to the contrary. 11 CONCLUSION 12 For the reasons stated above, we AFFIRM the judgment of the 13 bankruptcy court. [28] - 20 -