Opinion
No. 02-04303-BGC-9
December 20, 2002
ORDER Overruling Objections to Confirmation I. Background
The debtor proposes to reorganize the Vision Land Theme Park through a sale of its assets to Southbrook Entertainment, LLC. If the debtor's plan is confirmed, the sale to Southbrook will be consummated. Two creditors have pending objections to that plan. This order considers those objections. A separate order considers the debtor's plan.
The specific matters before the Court are:
1. Confirmation of the debtor's Second Amended and Restated Plan of Adjustment of Debts of the West Jefferson Amusement and Public Park Authority, d/b/a VisionLand Theme Park;
2. The City of Birmingham as a Party in Interest Objections to Certain Statements Contained in Debtor's Plan of Adjustment of Debts filed by the City of Birmingham, Alabama;
3. An Objection to Confirmation and Motion to Dismiss Case filed by Jefferson County, Alabama;
4. An Objection to Confirmation filed by VL-Space Shot/Turbo Drop, LLC and S S Power, Inc.; and
5. An Objection of Edward J. Hart to Confirmation of the Amended and Restated Plan of Adjustment of Debts of the West Jefferson Amusement and Public Park Authority d/b/a VisionLand Theme Park filed by Edward Hart.
After notice, a hearing was held on December 16, 2002. Appearing were; Daniel Sparks and Scott Brinkman, attorneys for Edward J. Hart and Ride Leasing Associates Robert Shields, Patricia Burns, Malera Traylor-Wright, and Gary Lee, attorneys for the City of Birmingham, Alabama; Robert Rubin and Janine Smith, attorneys for the Unsecured Creditors Committee; Jesse Vogtle, attorney for the purchaser Southbrook; Jeff Kelley and Mark Williams, attorneys for SunTrust; Stephen Leara, attorney for T.E. Stevens Company, Inc.; Stephen Porterfield, attorney for Mayer Electric Supply; Donald Rickertsen, attorney for the City of Bessemer, Alabama; Charles R. Johanson, attorney for S S Power/VL Space Shot; Clark Hammond, attorney for Alabama Power Company; Jayna Lamar, attorney for WaterMark Place/VisionLand Outlet Center LLC, and Jay Bender and Edward Peterson, attorneys for the debtor.
All matters were submitted on the testimony of Art Schutte, the Director of Business Development and Financial Planning for International Theme Park Services, Inc. (the brokerage firm assisting the debtor in marketing and selling the park), Jim Byram, Operating Manager for the debtor, and James E. Mulkin, a member of the Board of Directors of the debtor; exhibits; affidavits; and the record in this case. This order addresses the objections. A Confirmation Order entered contemporaneously with this order addresses confirmation.
The pre-hearing record in this case also supports the conclusions reached here and in the accompanying Confirmation Order. This Court has relied on that record in deciding these matters. See, In re Gulfstar Industries, Inc., 236 B.R. 75 (M.D. Fla. 1999).
Confirmation in a Chapter 9 bankruptcy case is governed by section 943 of the Bankruptcy Code. 11 U.S.C. § 943. Through section 943, the standards this Court must apply for confirmation are a combination of the requirements of section 943(b) and those requirements of section 1129 made applicable to chapter 9 cases through section 901(a). Case Management Manual for United States Bankruptcy Judges, Federal Judicial Center, 1995 with case annotations at 135. As the Confirmation Order demonstrates, the Court finds that the debtor successfully satisfied the standards that allowed this Court to confirm the debtor's plan.
II. The Objections
The objections of the City of Birmingham and Jefferson County were resolved before the hearing. The remaining two objections are discussed below.
A. Objection of S S Power, Inc.
The objection of S S raises issues similar to those this Court will decide in the pending adversary proceeding of The West Jefferson Amusement and Public Park Authority v. VL-Space Shot/Turbodrop, LLC. and S S Power, Inc., et al., A.P. No. 02-00241. In the adversary proceeding and the objection, S S contends that it owns the Space Shot/Turbo Drop amusement rides at VisionLand. The debtor claims an interest in the rides and proposes to sell them.
The S S objections are well taken. Whether right or wrong, they are well taken. However, the issues raised are better considered in the context of the adversary proceeding and will be resolved shortly. The adversary proceeding is set for trial on January 9, 2003.
A motion for relief from stay filed by S S will also be heard on January 9, 2003.
Consequently, the Court finds that the S S Objection to Confirmation is due to be overruled, without prejudice to S S to advance the same arguments in the adversary proceeding.
B. Objection of Edward Hart
Mr. Hart's objection is essentially a contest of the debtor's sale of its property to Southbrook Entertainment, LLC. Mr. Hart argues that he bid more than Southbrook and that he committed to spending "up to" four million dollars on maintenance, refurbishment, and repairs to the park rides. Mr. Hart contends that Southbrook did not make similar commitments. He concludes that because Southbrook did not, the operation and safety of the park will be jeopardized.
The Court has not addressed this issue.
For the reasons stated below, the Court finds that Mr. Hart's objection is due to be overruled.
III. Findings of Fact and Conclusions of Law
The Court of Appeals for the Eleventh Circuit instructs this Court, "The focus of a court's inquiry is the plan itself, and courts must look to the totality of the circumstances surrounding the plan. . . ." Id. at 1526 (citations omitted). The Court finds that the five factors discussed below represent the "totality of the circumstances" as that standard relates to the pending objections to this confirmation.
The specific statutory requirements for confirmation are discussed in the Confirmation Order entered contemporaneously with this order.
A. Sale of the Park Property
This Court does not have the authority or jurisdiction, outside of its authority to confirm the debtor's plan, to approve or disapprove the debtor's sale of its property to Southbrook Entertainment, LLC. And as the discussion below explains, to do so would be abusive. It might even be unconstitutional.
Pursuant to section 363 of the Bankruptcy Code, court approval of sales in bankruptcy cases is required under chapters other than Chapter 9. 11 U.S.C. § 363. Section 901 of the Bankruptcy Code, the section that specifies what sections of the Bankruptcy Code apply in Chapter 9 cases, (other than Chapter 9 sections), omits section 363. The reasons for that omission are discussed below.
The provisions of Chapter 9 of the Bankruptcy Code explicitly limit the authority of this Court over the operations of a municipality. See, Case Management Manual for United States Bankruptcy Judges, Federal Judicial Center, 1995 with case annotations at 124. Specifically, in deference to the Tenth Amendment, Section 904 of the Bankruptcy Code, entitled "Limitation on Jurisdiction and Powers of Court," provides:
Notwithstanding any power of the court, unless the debtor consents or the plan so provides, the court may not, by any stay, order, or decree, in the case or otherwise, interfere with:
(1) any of the political or governmental powers of the debtor;
(2) any of the property or revenues of the debtor; or
(3) the debtor's use or enjoyment of any income-producing property.
The court in In re County of Orange, 179 B.R. 185 (Bankr. C.D. Cal. 1995) explained the importance of these provisions. It wrote:
The language of § 904 was contained in the Municipal Bankruptcy Act of 1937 (the "1937 Act"). 4 Collier on Bankruptcy, ¶ 904.01 at 904-01 (L. King 15th ed. 1994). The purpose of this provision was to circumvent any possible Tenth Amendment objection to municipal bankruptcy legislation. Id. The 1937 Act was upheld by the Supreme Court in United States v. Bekins, 304 U.S. 27, 51, 58 S.Ct. 811, 815, 82 L.Ed. 1137 (1938). The limitations imposed by § 904 were important to the Bekins Court, and it is unlikely that any municipal bankruptcy legislation could be passed without these limitations. 4 Collier, supra, ¶ 904.01 at 904-2.
The same court in another opinion in In re County of Orange, 179 B.R. 177 (Bankr. C.D. Cal. 1995) explained further:
Section 903 states: "This chapter does not limit or impair the power of a State to control, by legislation or otherwise, a municipality of or in such State in the exercise of the political or governmental powers of such municipality. . . ." In essence, § 903 states that Chapter 9 does not affect the power of a state to control its municipality. The purpose of this provision is to remove any inference that Chapter 9 does anything more than provide a method for municipalities to adjust their indebtedness. 4 Collier, supra, ¶ 903.02 at 903-3. The legislative history of Chapter 9 indicates that § 903 was crucial to the constitutionality of Chapter 9. In fact, the Supreme Court relied, in part, on the limitations imposed by § 903, when it upheld the constitutionality of the 1937 Municipal Bankruptcy Act (the "1937 Act") in United States v. Bekins, 304 U.S. 27, 51, 58 S.Ct. 811, 815, 82 L.Ed. 1137 (1938). 4 Collier, supra, ¶ 903.02 at 903-2.
Id. at 181 n. 10.
This Court may not ignore these limitations. The court in In re Addison Community Hosp. Authority, 175 B.R. 646 (Bankr. E.D. Mich. 1994) explained why. It wrote:
The general policy considerations underlying the municipal debt adjustment plan of chapter 9 are the same as that of chapter 11 reorganization: to give the debtor a breathing spell from debt collection efforts and establish a repayment plan with creditors. H.R. Rep. No. 595, 95th Cong., 1st Sess. (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963. A primary distinction between chapter 11 and chapter 9 proceedings is that in the latter, the law must be sensitive to the issue of the sovereignty of the states. "The powers of the court are subject to a strict limitation — that no order or decree may in any way interfere with the political or governmental powers of the petitioner, the property or revenue of the petitioner, or any income-producing powers." 121 Cong.Rec. H39409-10 (daily ed. Dec. 9, 1975) (statement of Rep. Edwards). Consequently, chapter 9 avoids placing any restrictions on the powers of the states in the exercise of their sovereign rights and duties.
Congress included a provision in chapter 9 which limits the jurisdiction and the power of the court. Section 904 states: Notwithstanding any power of the court, unless the debtor consents or the plan so provides, the court may not, by any stay, order, or decree, in the case or otherwise, interfere with:
(1) any of the political or governmental powers of the debtor;
(2) any of the property or revenues of the debtor; or
(3) the debtor's use or enjoyment of any income-producing property. 11 U.S.C. § 904. This section makes clear that the court may not interfere with the choices a municipality makes as to what services and benefits it will provide. H.R. Rep. No. 595,398.
The foundation of § 904 is the doctrine that neither Congress nor the courts can change the existing system of government in this country. The powers of the federal government are limited by the Constitution. The powers that are not given to the federal government are reserved to the states. One of the powers reserved to the states is the power to create and govern municipalities. 121 Cong.Rec. H39413-14 (statement of Rep. Badillo). Therefore, chapter 9 was created to give courts only enough jurisdiction to provide meaningful assistance to municipalities that require it, not to address the policy matters that such municipalities control. The United States Supreme Court and the courts of appeals have stated that the jurisdiction of the bankruptcy court in chapter 9 cases is limited to disapproving or approving and carrying out a proposed plan for debt adjustment. H.R. Rep. No. 595, 262-64. During the developmental period of a plan, the court may not interfere with the distribution and delegation of power established by state law. After a plan is filed, but prior to confirmation, creditors may file written acceptances or rejections of the plan and any modifications. 11 U.S.C. § 1126 (made applicable to chapter 9 proceedings through 11 U.S.C. § 901 (a)). Moreover, under 11 U.S.C. § 943, a "special tax payer" may object to confirmation of the plan.
Id. at 649 (emphasis added) (footnote omitted).
The opinion continues:
The purpose of chapter 9 is to allow municipalities the opportunity to remain in existence through debt adjustment and obtain temporary relief from creditors. Congress has explicitly stated in the legislative history that the courts do not have jurisdiction to interfere with the political and policy choices a municipality makes in running its organization; rather, courts are limited to approving or disapproving proposed plans for debt adjustment. See H.R. Rep. No. 595, 262-64.
Id. at 651 (emphasis added).
The above relates directly to the "sale issue" before this Court. The court in In re Richmond Unified School Dist., 133 B.R. 221 (Bankr. N.D. Cal. 1991) wrote:
Section 904 also prohibits the court from interfering with "any of the property or revenues of the debtor" or with "the debtor's use or enjoyment of any income producing property." Thus, there is no "estate" under section 541, and the debtor is free to use, sell or lease property without regard to the restrictions in section 363.
Section 901 of the Bankruptcy Code defines "property of the estate" for a Chapter 9 case as, In this chapter — (1) `property of the estate', when used in a section that is made applicable in a case under this chapter by section 103(e) or 901 of this title, means property of the debtor . . . 11 U.S.C. § 901 (emphasis added).
This Court agrees. Therefore, based on the evidence and the discussion above, the Court finds that it does not have the authority or jurisdiction, outside of its authority to confirm the debtor's plan, to resolve the dispute between Mr. Hart and the debtor. However, within the Court's jurisdiction to approve the sale in connection with confirmation of the debtor's plan, the Court finds that the sale should be approved.
B. Evidence
Writing for the Court of Appeals for the Eleventh Circuit in In re Piper Aircraft Corp., 244 F.3d 1289 (11th Cir. 2001), Circuit Judge Stanley Marcus explained, "The Bankruptcy Code, at 11 U.S.C. § 1129 (a), sets forth the criteria that a court must consider in deciding whether to confirm a plan. Facts relating to these criteria are the only facts that necessarily are put at issue by the confirmation process." Id. at 1299 (footnote omitted) (emphasis in original).
As the discussion below demonstrates, this Court has considered those facts.
C. Good Faith
The standards this Court should apply in deciding whether the plan was filed in good faith are contained in the per curiam opinion of the Court of Appeals for the Eleventh Circuit in In re McCormick, 49 F.3d 1524 (11th Cir. 1995). That opinion reads in part:
Mr. Hart's objection and arguments imply that he does not believe the debtor's plan was proposed in good faith.
In order to be confirmed, a Chapter 11 reorganization plan must be submitted in good faith and not by any means forbidden by law. 11 U.S.C. § 1129 (a)(3). While the Bankruptcy Code does not define the term, courts have interpreted "good faith" as requiring that there is a reasonable likelihood that the plan will achieve a result consistent with the objectives and purposes of the Code. In re Block Shim Development Company-Irving, 939 F.2d 289, 292 (5th Cir. 1991); In re Madison Hotel Associates, 749 F.2d 410, 425 (7th Cir. 1984); In re Coastal Cable T.V., Inc., 709 F.2d 762, 764-65 (1st Cir. 1983) (in corporate reorganization, plan must bear some relation to statutory objective of resuscitating a financially troubled company).
Where the plan is proposed with the legitimate and honest purpose to reorganize and has a reasonable hope of success, the good faith requirements of section 1129(a)(3) are satisfied. Kane v. Johns-Manville Corp., 843 F.2d 636, 649 (2nd Cir. 1988); In re Sun Country Development, Inc., 764 F.2d 406, 408 (5th Cir. 1985); In re Mulberry Phosphates, Inc., 149 B.R. 702, 707 (Bankr. M.D. Fla. 1993).
The focus of a court's inquiry is the plan itself, and courts must look to the totality of the circumstances surrounding the plan, Block Shim, 939 F.2d at 292; Madison Hotel, 749 F.2d at 425, keeping in mind the purpose of the Bankruptcy Code is to give debtors a reasonable opportunity to make a fresh start. Sun Country, 764 F.2d at 408.
Id. at 1526. See also, In re Piper Aircraft Corp., 244 F.3d 1289 (11th Cir. 2001).
Section 1129(a)(3) of the Bankruptcy Code is applicable to Chapter 9 confirmations through section 901.
The evidence in this case establishes that the plan was filed in good faith.
See note 1 above.
Mr. Jim Byram has been the Operating General Manager of the debtor since June 2002. He is not paid in that capacity but is a regular employee of the City of Bessemer, Alabama. In that capacity, he serves as the City's Director of Economic and Community Development. He has held that position for 19 years.
In his capacity with the City, Mr. Byram testified as an expert in the area of the qualifications of individuals to operate businesses and the likelihood of those individuals and businesses to succeed. He also testified as a fact witness in his capacity as the manager of the debtor.
In particular, Mr. Byram testified about the debtor's Planning Committee, formed to assist the Board of Directors in managing the sale of the debtor's property. Mr. Byram testified that he had never worked with a more committed group. The Planning Committee was very active. The full committee met for over 50 hours. The members personally checked resumes and references of the bidders. The full committee met with all of the bidders. They met with Mr. Art Schutte, the representative of the brokerage firm assisting the debtor. And they met with the bondholders.
When asked what the committee considered before selecting the winning bid, Mr. Byram testified, "The main thing the committee was looking at was the long term viability of the park and the ability of the parties to operate the park and fit into the community." Unofficial Transcript. He explained that financial ability, experience in turnaround situations, and a commitment to safety were also factors considered.
After bids were received, Mr. Byram personally checked the financial references of the principals of Southbrook. He testified that all of their financial abilities were strong.
Mr. Byram testified that the bondholders, the Planning Committee, and the Board of Directors supported the sale to Southbrook.
On cross examination by Mr. Hart's attorney, Mr. Byram reiterated, "From the Planning Committee's stand point, they were interested in most importantly finding the right operator for the park." Unofficial Transcript.
Based on Mr. Byram's testimony, and the record in this case, the Court finds that the actions of the debtor, through its manager, Planning Committee, and its Board, establish that the debtor's plan was proposed with a legitimate and honest purpose to reorganize and that the plan was proposed in good faith.
What remains then is to determine whether the plan has a reasonable hope of success, that is, is the plan feasible. If it does, as the opinion in McCormick reveals, the good faith requirements of section 1229(a)(3) will be satisfied.
D. Feasibility
A proposed plan of reorganization must be feasible before a court may confirm it. The court in U.S. v. TM Bldg. Products, Ltd., 231 B.R. 364, 82 (S.D. Fla. 1998) explained the standards that should be considered. The court wrote:
In determining the feasibility of a reorganization plan pursuant to Chapter 11 of the Code, the Court is required to determine whether the Plan offers a reasonable prospect of success. See In re Johns-Manville Corp., 68 B.R. 618, 635 (1986), aff'd in part, rev'd in part, 78 B.R. 407, aff'd sub nom Kane v. Johns-Manville Corp., 843 F.2d 636 (2nd Cir. 1988). A debtor need not prove with absolute certainty that he will be able to complete the payments under the plan. See id., see also In re Drexel Burnham Lambert Group, Inc., 138 B.R. 723, 762 (Bankr.S.D.N.Y. 1992). "The test is whether the things which are to be done after confirmation can be done as a practical matter." In re Bergman, 585 F.2d 1171, 1179 (2nd Cir. 1978). The mere prospect of financial uncertainty is not a sufficient ground to defeat confirmation. See Drexel Burnham, 138 B.R. at 762.
Id. at 372-73.
Mr. Art Schutte, the Director of Business Development and Financial Planning for International Theme Park Services, Inc., (the brokerage company assisting the debtor in selling the park,) testified as an expert in analyzing and evaluating theme parks. Mr. Schutte was asked, "Do you have any doubts about their financial ability to close the transaction?" He answered, "Absolutely not."
Mr. Schutte's conclusion was based on his personal knowledge of the financial affairs of the principals of Southbrook. One of those individuals had been in the amusement-leisure park industry for over 25 years. Another was in the design, manufacturing, and construction sector of the industry. And the other had been in the banking business for over 23 years and had, within the last year, been involved in the restructuring of two parks in California. In Mr. Schutte's opinion, the financial backgrounds of these individuals and the buyer were solid. And as he testified, he had no doubt that the buyers had the financial ability to "close the transaction."
As discussed above, Mr. Byram testified that before the winning bid was accepted, he checked the financial affairs of the buyer and its principals. Mr. Byram called references and banks and investigated the financial ability of the buyer's backer. He testified that the financial affairs he investigated were exceptionally solid.
Like Mr. Schutte, Mr. Byram concluded that the buyers had the ability to complete this transaction.
Based on the evidence, the Court finds that the plan is feasible. Without question, there is a reasonable hope of success.
Therefore, based on the evidence, and in applying the above standards, the Court finds that the good faith requirements of section 1229(a)(3) have been satisfied. The plan was proposed with the legitimate and honest purpose to reorganize and has a reasonable hope of success.
Evidence of the debtor's good faith is also embodied in the testimony of Mr. Jim Ed Mulkin, a member of the park's Board of Directors and a member of the Board's Planning Committee. He testified in part;
We spent over 50 hours evaluating this park. We interviewed all the contenders. We interviewed consultants. We had attorneys. We took our best knowledge of what we thought would be best for those eleven communities that had invested their money in that project. We thought that Pro team park would do the best job to satisfy the dream of Vision Land.
Unofficial Transcript.
E. Safety
Mr. Hart raised the issue of safety in his objection and stressed it at the hearing. His argument is that Southbrook, (in Mr. Hart's estimation), did not commit sufficient funds to operate the park safely and therefore visitors will be injured. He deduces that when those injuries occur, the park's attendance will drop. He concludes that after attendance drops, the park will close.
Mr. Hart did not offer any evidence to support his argument. He did not offer any evidence that the park has ever been unsafe or will be operated unsafely. And he did not offer any evidence that those who will be charged with operating the park will do so in an unsafe manner. On the other hand, the debtor offered the evidence discussed below.
Mr. Schutte's testimony on this subject is not controverted. Based on his over 25 years of experience in the business and his familiarity with the principals of Southbrook, Mr. Schutte offered these observations about safety.
In describing the three principals of the buyer who will be charged with operating the park, Mr. Schutte testified:
I felt with their experience they could, they could manage this facility. Anybody that has this type of experience, or years of experience in the leisure-attractions industry, all come to realize, one of the number, first things you have to take care of — safety. And I've had, heard of no instances of any of the parks they have been involved in there's been any safety problems whatsoever.
Unofficial Transcript.
Mr. Schutte was asked, "Do you have any concerns about their commitment to investing money to make the park safe and successful?" He replied emphatically, "I strongly feel whatever it takes to make that park safe, they will make it happen." Unofficial Transcript.
On cross examination, Mr. Hart's attorney asked Mr. Schutte, "Do you have any insight as to why the bid documents and asset purchase agreement do not commit the successful bidder to spend the money necessary to operate the rides safely?" Unofficial Transcript. Mr. Schutte testified:
I would assume from my comment before that whoever buys this park, and the bidders involved all have had experience in the amusement park industry, nobody is going to operate that park, safety is number one, it's just an inherited feature, once you get to the business you understand that, and I don't think that should be part of that — safety will prevail.
Unofficial Transcript.
IV. Conclusion
The Court finds that the objections of S S Power and Mr. Hart are due to be overruled. A separate Confirmation Order will be entered contemporaneously with this order.
V. Order
Based on the above, it is ORDERED:
1. The City of Birmingham as a Party in Interest Objections to Certain Statements Contained in Debtor's Plan of Adjustment of Debts is WITHDRAWN;
2. The Objection to Confirmation and Motion to Dismiss Case filed by Jefferson County, Alabama is WITHDRAWN;
3. The Objection to Confirmation filed by VL-Space Shot/Turbo Drop, LLC and S S Power, Inc. is OVERRULED;
4. The Objection of Edward J. Hart to Confirmation of the Amended and Restated Plan of Adjustment of Debts of the West Jefferson Amusement and Public park Authority d/b/a VisionLand Theme Park is OVERRULED; and
5. A separate order confirming the debtor's Second Amended and Restated Plan of Adjustment of Debts of the West Jefferson Amusement and Public Park will be entered contemporaneously with this order.
6. The Clerk of Court shall serve a copy of this order through the National Bankruptcy Noticing Center, on all creditors and others requesting notice; and
7. The debtor shall serve a copy of this order through local mail or facsimile, on all attending the hearing on December 16, 2002, and all others the debtor believes should receive expedited notice.
Done this 20th Day of December, 2002.
If this order disagrees in any respect with the Confirmation Order, the Confirmation Order controls.