820 F.2d 700 (5th Cir. 1987), 87-2318, In re First South Sav. Ass'n
|Citation:||820 F.2d 700|
|Party Name:||In re FIRST SOUTH SAVINGS ASSOCIATION, Petitioner.|
|Case Date:||June 22, 1987|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
Sheinfeld, Maley & Kay, Henry J. Kaim, Edward L. Ripley, Houston, Tex., for petitioner.
Joe J. Fisher, U.S. Dist. Judge, Beaumont, Tex., Erich M. Ramsey, Arlington, Tex., Hearne, Knolle, Lewallen, Livingston & Holcomb, Donald W. Holcomb, Austin, Tex., Clint W. Lewis, Beaumont, Tex., for respondents.
On Petition for Writ of Mandamus to the United States District Court for the Eastern District of Texas.
Before RUBIN, RANDALL and HIGGINBOTHAM, Circuit Judges.
RANDALL, Circuit Judge:
On the petition of First South Savings Association for a writ of mandamus, we issue a limited mandamus requiring the district court (subject to its resolution of a mootness issue referred to herein) to issue a stay pending appeal of the bankruptcy court's "Order Granting Motion for Authority to Incur Secured Debt; to Enter into Post-Petition Financing Agreement; and to Grant Super-Priority Lien Pursuant to Section 364(d) of the Bankruptcy Code," and requiring the district court to hold a prompt hearing on the merits of the appeal of that order.
The debtor, Sabine Development Ltd., is a Texas limited partnership. The general partner of the debtor is Park Commercial Investments, Inc. ("Park Commercial"), which is a Texas corporation. Lloyd Hayes is the majority stockholder of Park Commercial and Hayes controls the debtor. First South Savings Association ("First
South"), a Texas savings and loan, holds the first lien in the principal amount of $10 million on the debtor's sole asset, a ten-story office building ("office building" or "building"). 1 The office building is adjacent to the Waller Creek Hotel ("hotel"), which is owned by a limited partnership, Waller Creek Ltd., of which Park Commercial is the general partner. The Waller Creek Garage ("garage"), connected to the hotel, is owned by another Texas limited partnership of which Park Commercial is the general partner.
On May 6, 1986, the day of First South's scheduled foreclosure on the office building, the debtor filed a petition under Chapter 11 of the Bankruptcy Code of 1978 ("Bankruptcy Code" or "Code"). On June 23, 1986, First South filed a motion for relief from the automatic stay. Thereafter, on September 2, 1986, the debtor filed its "Emergency Motion for Authority to Incur Secured Debt; to Enter Into Post-Petition Financing Agreements; and to Grant Super-Priority Lien Pursuant to Sec. 364(d)" ("Super Priority Financing Motion"), seeking to incur additional indebtedness in the amount of $2 million. The proposed loan would give the lender, First Bank & Trust, Groves, a first lien on the office building which would subordinate all other lienholders' interests in the office building. The proposed use of the funds is to "convert" 2 the office building into hotel/convention center space.
The office building is approximately fifty percent completed including tenant finish out; the remaining fifty percent of the building lacks tenant finish out. From the date the Chapter 11 petition was filed, there has been no further construction on the office building. The office building is seven percent leased. There are no proposed leases or contracts for the remaining space.
On September 9, 1986, a preliminary hearing on First South's motion for relief from stay was held. At the close of that day's hearing, the bankruptcy court ordered the debtor to make an adequate protection payment in the amount of $25,000 to First South, pending the conclusion of the hearing on October 24, 1986. The scheduled October 24 hearing was, upon the debtor's request, postponed, and another $25,000 adequate protection payment was ordered pending the final hearing on the motion to lift stay set for December 9, 1986.
At the continuation of the hearing on December 16, 1986, the expert appraisal witness called by First South, Gerald Teel, M.A.I., S.R.P.A., testified that the fair market value of the office building on that date was $7.5 million. The debtor's expert appraisal witness, Dr. Terry V. Grissom, Ph.D., M.A.I., S.R.P.A., agreed. Teel testified that the value of the office building had decreased by approximately $840,000
since the filing of the petition in bankruptcy and Grissom agreed with that conclusion, at least insofar as the value was assessed based on the assumption that the building was used as an office building as opposed to a hotel/convention center. 3
According to Grissom, the debtor's own appraiser, if the proposed $2 million loan was made, the fair market value of the office building would be $8.5 million. Thus, the $2 million infusion would enhance the value of the office building by only $1 million. Both parties agreed that there is no equity in the property.
At the close of testimony on December 19, 1986, the bankruptcy court took the various motions under advisement. First South opposed the super priority financing 4 on the grounds that: (1) the debtor failed to satisfy the requirement under section 364(d)(1) that it show that it had pursued alternative methods of financing and that other types of financing were not available; (2) the debtor failed to satisfy section 364(d)(1)'s requirement that it provide adequate protection of all senior lienholders' interest in the office building (the debtor has little cash income and no other assets or other means to provide adequate protection); (3) the security documents and loan agreement the debtor had proposed for the super priority financing provides for "cross-collateralization" of the proposed indebtedness of the debtor with all other outstanding indebtedness owed by Lloyd Hayes and/or Lloyd Hayes entities; (4) the loan documents had expired at the time of trial and were conditioned on facts not in evidence or contradicted by the evidence; and (5) the debtor proposed to change the nature of the collateral and the bargain between First South and the debtor by changing the collateral from an office building to a hotel/convention center violating the principle that a debtor cannot unilaterally force a secured lender to accept a complete and total change in the nature of the collateral upon which the lender relied for security for its loan.
In an order dated January 28, 1987 ("Super Priority Financing Order"), the bankruptcy court granted the debtor's Super Priority Financing Motion, 5 and notice of appeal was filed by First South in the district court on the following day, and the district court has jurisdiction over that appeal. The bankruptcy court denied First South's motion for stay pending appeal in an order dated March 9, 1987. The district court denied a stay motion on March 31, 1987.
On April 3, 1987, First South filed a petition in this court for a writ of mandamus. First South requested, pursuant to this court's decision in National Bank of Commerce v. Barrier (In re Barrier ), 776 F.2d 1298 (5th Cir.1985), that this court issue a "limited mandamus" requiring the district court to issue a stay pending appeal of the bankruptcy court's Super Priority Financing Order and requiring the district court "to hold a prompt hearing on the merits of First South's appeal of [that] Order." Petition for Writ of Mandamus or in the Alternative Motion for Stay Pending Appeal at 2 [hereinafter referred to as "Mandamus Petition"]. On April 6, 1987, this panel stayed the bankruptcy court's order pending further order of this court and directed that respondents file a response to the petition by April 13, 1987. On April 17, 1987, we denied the petition for writ of mandamus and, in the same order, vacated the stay order entered on April 6, 1987. Thereafter, we granted First South's motion for reconsideration of
our April 17 order and, on May 4, 1987, we ordered that all further proceedings in this matter be stayed pending oral argument on the petition for writ of mandamus.
After hearing argument on the petition and carefully considering the materials submitted by the parties, we are now persuaded that a limited mandamus should issue requiring the district court (subject to its resolution of the mootness issue referred to in Part IV infra ) to enter a stay of the bankruptcy court's Super Priority Financing Order pending appeal and requiring the district court to hold a prompt hearing on the merits of that appeal.
In its petition for writ of mandamus, First South argues that no other avenue of appeal is available to it and that the harm to First South would be irreparable if a stay pending appeal is not entered. First South contends that, without the issuance of the requested relief, it would lose its ability to prosecute an appeal to the district court because, under 11 U.S.C. Sec. 364(e), 6 such an appeal might be rendered moot. Moreover, argues First South, based on the applicable legal standards, the district court, and the bankruptcy court before that, abused their discretion in denying its motion for a stay pending appeal. First South points to the criteria applied to determine whether a stay pending appeal should issue:
(1) Whether the movant has made a showing of likelihood of success on the merits;
(2) Whether the movant has made a showing of irreparable injury if the stay is not granted;
(3) Whether the granting of the stay would substantially harm the other parties; and
(4) Whether the granting of the stay would serve the public interest.
See, e.g., Ruiz v. Estelle, 666 F.2d 854, 856 (5th Cir.1982) ("Ruiz II "). Further, First South notes that this court has recognized that "the movant need not always show a 'probability' of success on the merits; instead, the movant need only present a substantial case on the merits...
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