Opinion
Case No. 11-61545
10-30-2012
In re: Marble Cliff Crossing Apartments, LLC, Debtor.
Chapter 11
Judge Caldwell
MEMORANDUM OPINON AND ORDER FOR MOTION
OF MTGLQ, INVESTORS, L.P. UNDER FED. R. BANKR. P. 8005 TO SUSPEND
CONFIRMATION HEARING (DOC. NO. 360)
This Memorandum Opinion and Order constitutes the Court's findings of fact and conclusions of law for the above-captioned Motion filed by MTGLQ Investors, L.P., an affiliate of Goldman, Sachs ("Creditor") and the Objection filed by the Marble Cliff Crossing Apartments, LLC ("Debtor"). Based upon the testimony and a review of the record, the Court denies the Motion. A brief discussion follows.
This Chapter 11 proceeding was filed on November 17, 2011. To date, there have been nearly 400 docket entries. Many issues have been litigated by the Debtor and the Creditor. They are battling over control of the upscale 276-unit apartment complex that currently is approximately 96% occupied. The complex is located on 2828 Marblevista Blvd., Columbus, Ohio, on approximately 30 acres, and offers such amenities as a ¾-acre pond, a community building and a mail center.
The Debtor proposed a plan within approximately seven months from the date of filing. Under the plan, the Creditor is primed to receive payment in full over approximately a 32-year period, at a market rate of interest to be determined at the confirmation hearing. For purposes of confirmation, the parties have stipulated to a value for the apartment complex of $32,500,000.00, and have stipulated that the Creditor's secured interest is worth $31,750,708.03. These numbers establish that the Creditor is over-secured. The Creditor paid a discounted amount at a HUD auction for its secured position ($23,250.099.00). Prior to the bankruptcy filing the Debtor paid the Creditor $550,000.00 in fees for giving the Debtor a chance to refinance or acquire additional capital. Post-petition the Creditor received from the Debtor monthly payments of $150,883.93. in exchange for authority to use rents to fund operations.
Not only has the Debtor moved diligently towards confirmation, but it has also proposed, over the strenuous objection of the Creditor, a remediation plan to reduce the levels of methane gas on the property. This significant health and safety issue results from the construction of the complex on top of a former quarry that over the years accepted construction debris and organic material. Despite this significant progress, at the last minute of this case, the Creditor opposed a brief extension of the exclusive period to November 30, 2012, for the Debtor to confirm its plan. We are mere days away from a confirmation hearing scheduled to start on November 1, 2012. Both parties have engaged in significant discovery, including the exchange of documents and depositions, all in preparation for the confirmation hearing.
For the very first time during the hearing on the instant Motion, and almost a year into this case, the Creditor revealed that it wanted to stay the confirmation proceedings so that it could prepare a competing plan that will in some manner call for the liquidation of the apartment complex and payment to all non-insider creditors in full. The means by which this will occur remain unclear, however, since the Creditor already filed a Motion to Convert this case to Chapter 7 on October 4, 2012. Chapter 7 contemplates liquidation by a trustee, rather than reorganization by filing a plan.
The record shows that the Creditor has purchased a significant number of claims, including mailing a one million dollar check to Franklin County for property taxes. As noted by the Court during the hearing, an announcement of the Creditor's intention to file a competing plan much earlier in the process, so that creditors could vote on both plans together, is the most rational approach. Prompt action by the Creditor would have reduced costs and expenses, and obviated the need to appeal the brief extension of the Debtor's exclusive period
We will now turn to the applicable standards that guide this Court's decision. First, the Creditor asserts that the appeal of the exclusive period extension divests this Court of jurisdiction to conduct the confirmation hearing for the Debtor's plan. See Whispering Pines Estates, Inc. d/b/a The Pines at Edgewood Centre v. Flash Island, Inc., (In re Whispering Pines Estates, Inc.,) 369 B.R. 752, 761 (1st. Cir. BAP 2007) (removal of jurisdiction "is not limited to the issues specifically defined in the appeal, but includes all of those matters that can directly affect the outcome of the appeal.") With this background, the Creditor essentially argues that its own belated effort to present a competing plan becomes "equitably moot" if the Debtor is able to confirm and consummate a plan, over its objection.
The Creditor's view; however, finds no support from the Sixth Circuit Court of Appeals that would bind this Court. The Whispering Pines decision does not stand for the proposition that an appeal divests the bankruptcy court of all jurisdiction. In fact, it specifically notes that a broad application of such a rule would "severely hamper a bankruptcy court's ability to administer its cases in a timely manner." See Whispering Pines, 369 B.R. at 758. The correct statement of what some courts call the "Divestiture Rule" is that "so long as the lower court is not altering the appealed order, the lower court retains jurisdiction to enforce it." See In re Tribune Co., et al. 472 B.R. 223, 231-232 (Bankr. D. Del. 2012).
In the Sixth Circuit, a four-factor test governs whether a stay pending appeal should be granted. In re Barnes 119 B.R. 552, 557-558 (D. S.D. Ohio 1989) citing Friendship Materials, Inc. v. Michigan Brick, Inc., et al., 679 F.2d 100, 102 (6th Cir. 1982). This Court loses the ability after an appeal is taken to in any way expand upon or alter the order under review. Proceeding to confirmation on the Debtor's plan; however, in no way alters or expands upon the order extending the exclusive period to November 30, 2012. To the contrary, this Court retains the jurisdiction to enforce any appealed order unless the movant establishes cause under Rule 8005 of the Federal Rules of Bankruptcy Procedure. To rule otherwise, would hold debtors hostage to the interests of a single objecting creditor, to the detriment of all other creditors, and debtors' estates.
Turning to the four-factor test for granting stays under Rule 8005 of the Federal Rules of Bankruptcy Procedures, this Court must weigh:
1. The likelihood of success on the merits of the appeal;
2. Whether there is substantial harm to the interests of the movant;
3. Whether there is substantial harm to other parties involved; and
4. Any impact upon the public interest.
In re Level Propane Gases, Inc., et. al., 304 B.R. 775, 777 (Bankr. N.D. Ohio 2004) citing American Imaging Services, Inc. v. Eagle-Picher Industries, Inc. (In re Eagle-Picher Industries, Inc.), 963 F.2d 855, 858 (6th Cir. 1992).
Focusing on the likelihood of success factor, it is not dispositive, and must be weighed along with the others. This factor does not require the appellant to establish definitively that it will prevail, but more than a "mere possibility" of success is required. See Mich. Coalition of Radioactive Material Users, Inc. v. Griepentrog, et al., 945 F.2d 150, 153-154 (6th Cir. 1991). In view of this standard, the Court will discuss its ruling extending the exclusive period that is now on appeal.
In determining whether to extend the exclusive period to confirm a plan courts have significant flexibility to determine whether cause has been established, in view of the nature of the particular reorganization proceeding. In re Amko Plastics, Inc., 197 B.R. 74, 77 (Bankr. S.D. Ohio 1996). Indeed, the governing principle is maximum flexibility so that courts may balance the rights of debtors to propose and confirm a plan while ensuring creditors are not harmed by delay tactics or the lack of good faith negotiations to resolve objections. Id. The Creditor fails to present any credible argument that this Court abused its discretion when it determined that the Debtor established cause for an extension of the exclusive period to November 30, 2012- a mere twenty-nine days after the confirmation hearing is commenced. On these bases, the Court finds and concludes that the factor of likelihood of success on the merits, weighs heavily in favor of the Debtor.
Turning to the second and third factors, the Court must balance the relative harms to the Creditor and other parties. The scale again weighs heavily in favor of the latter. As noted earlier, the Debtor in less than a year filed a plan that proposes to pay the Creditor the full amount of its secured claim. This amount represents a premium over what the Creditor paid for its secured position. In addition, the Debtor has taken prompt action to remediate environmental concerns, again over the objection of the Creditor. The Debtor is poised to either confirm its plan or have it denied by the Court on November 1, 2012, or shortly thereafter. In any event, the exclusive period will expire in slightly more than a month, on November 30, 2012.
To grant a stay now would waste all the time, effort and expenses incurred by all parties in reaching this point. It is in all parties' best interest, including the Creditor, to have this case confirmed or otherwise concluded, as soon as possible. On the other hand, since the Creditor only announced its intention to file a competing plan on October 22, 2012, a delay of a month is inconsequential, compared to derailing the confirmation process, to accommodate the Creditor's schedule.
Moving on to the final factor of public interest, here again, the scales weigh heavily in favor of the Debtor. Steps have been taken to remediate the environmental issues, and the Debtor has offered in their plan to pay the Creditor in full. While the Creditor may not like the rate of interest or the length of the repayment period, this is a conundrum of their own making. Holding the largest single claim from the beginning of this case, the Creditor had more than enough influence to present a viable alternative plan early in the case. The public interest, which includes consideration of the tenants of the property, is always served better by the expeditious conclusion of bankruptcy proceedings, where the businesses are rehabilitated or sold to viable third parties, and the surviving entity continues to provide valued services.
For all these reason the Court DENIES the above-captioned Motion.
IT IS SO ORDERED.
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