Banning Lewis Ranch Co. v. City of Colo. Springs (In re Banning Lewis Ranch Co.)

Decision Date22 June 2015
Docket NumberAdversary Proceeding No. 11–01634 HRT,Bankruptcy Case No. 10–13445 KJC
Citation532 B.R. 335
PartiesIn re: The Banning Lewis Ranch Company, LLC, et al.,Debtors. The Banning Lewis Ranch Company LLC, BLH No. 1, LLC, BLH No. 2, LLC, and Banning Lewis Holdings, LLC, Plaintiffs, v. City of Colorado Springs, Colorado, and Colorado Springs Utilities, Defendants.
CourtU.S. Bankruptcy Court — District of Colorado

Matthew J. Ochs, Risa Lynn Wolf–Smith, Denver, CO, Michael Foreman, New York, NY, for Plaintiffs.

Peter A. Cal, Mark L. Fulford, Denver, CO, William A. Hazeltine, Sullivan Hazeltine Allison LLC, Wilmington, DE, for Defendants.

ORDER ON PENDING MOTIONS
Howard R. Tallman, Judge United States Bankruptcy Court

THIS MATTER is before the Court on the following motions and related filings:

(1) The Motion to Intervene (docket # 43) filed by Randle W. Case, the Responses thereto filed by the Plaintiffs2 and the Defendants (docket # 72 and # 73, respectively), the Reply filed by Mr. Case (docket # 75), and the Sur–Reply filed by the Plaintiffs (docket # 84);
(2) The Plaintiffs' Motion for Partial Summary Judgment (docket # 74), the Responses thereto filed by Randle W. Case and the Defendants (docket # 87 and # 88, respectively), and the Replies filed by the Plaintiffs (docket # 92 and # 94);
(3) The Defendants' Motion to Require Joinder of Absent Annexors in Banning Lewis Ranch (docket # 89), the Plaintiffs' Response (docket # 97), the Defendants' Reply (docket # 103), and the Plaintiffs' Sur–Reply (docket # 108); and
(4) The Defendants' Motion for Partial Summary Judgment (docket # 90), the Plaintiffs' Response (docket # 98), the Defendants' Reply (docket # 102), and the Plaintiffs' Sur–Reply (docket # 107).

The Court held oral argument on December 12, 2014, following which the pending motions were taken under advisement. Having considered the pending motions and arguments of the parties, which total well over 4,000 pages, the Court is now prepared to rule, and hereby finds and concludes as follows.

BACKGROUND

The following facts are undisputed, unless otherwise indicated. On the Debtors' petition date, their assets consisted principally of real property, including 17,760 acres of mostly vacant land in El Paso County, Colorado (the “Property”) owned by Debtor The Banning Lewis Ranch Company LLC (BLRC). The Property is included in a total collection of approximately 24,000 acres of real property, referred to as Banning Lewis Ranch.

In 1988, BLRC's predecessor in interest, Aries Properties, along with others owning property in Banning Lewis Ranch (together, the Annexors), entered into an Annexation Agreement with the City of Colorado Springs, Colorado (the City), constituting the largest annexation in the City's history. The Annexation Agreement sets forth the parties' intent that the annexation and provision of public facilities on the Annexed Property not create additional costs or impose additional burdens on the City's existing residents; instead, the costs of the anticipated public improvements and infrastructure were to be borne by the Annexors.

Shortly after the execution of the Annexation Agreement, Aries Properties fell into default under its obligations to its secured lender, Saguaro Mortgage Services. Aries conveyed title to Saguaro, which conveyed it to Western Savings and Loan Association, which, in turn, was taken over by the Resolution Trust Corporation, which sold the Property to Banning Lewis Ranch Corporation in the 1990's. Additional conveyances and corporate restructurings followed over the next decade, culminating in BLRC's acquiring title to the Property.

As time passed, and the Property remained vacant, other Annexors and their successors in interest pursued development in other areas of Banning Lewis Ranch. It was unclear whether any party who pursued development of a part of the Annexed Property was required to pay the full cost of improvements benefitting all of the Annexed Property, as set forth in the Annexation Agreement. In 2001, Receivers for a local improvement district in Banning Lewis Ranch filed a declaratory judgment action (the “Receiver Annexation Litigation”) against the City, case number 01–CV–0566 in the El Paso County, Colorado, District Court (the State Court), seeking among other things a determination that the Annexation Agreement did not impose joint and several liability on the Annexors for infrastructure development costs.

BLRC appeared in the Receiver Annexation Litigation and filed a Trial Brief arguing against the Receivers' requested relief, which included rejecting the Annexation Agreement as an executory contract and selling Annexed Property free and clear of the Annexation Agreement. At that time (September 2004), BLRC stated that the Annexation Agreement was “neither impossible nor impracticable to perform,” and that BLRC was “embracing the significant value the Annexation Agreement provides to all parties and is pressing forward with its efforts to develop its property.”3

The parties to the Receiver Annexation Litigation and other Annexors, including BLRC, entered into a Settlement Agreement, which was approved by the State Court in November 2004 and recorded in the El Paso County Clerk and Recorder's Office in 2005. The Settlement Agreement provided that the Annexation Agreement did not impose joint and several liability on the Annexors for infrastructure development. Instead, the parties agreed that each Annexor would bear its proportionate share of the costs for certain defined “Shared Infrastructure” to be constructed under the Annexation Agreement and that the City would be responsible for determining such specific Shared Infrastructure costs and the appropriate allocation of such costs.

In July 2007, the City approved a study in which BLRC actively participated, which estimated that the overall infrastructure obligations under the Annexation Agreement totaled $891,842,467 for the entire Banning Lewis Ranch. The City then established the Banning Lewis Ranch Annexor Obligation Fee of $2,355 per acre; the Banning Lewis Parkway Fee of $8,163 per acre; and the Banning Lewis Interchange Fee of $1,392 per acre; for total Shared Infrastructure fees of $11,910 per acre, or approximately $200 million for the Property.

BLRC did not proceed with development, and the Property remained vacant while residential development occurred in other areas of Banning Lewis Ranch. On October 28, 2010, the Debtors filed their voluntary Chapter 11 bankruptcy cases in the United States Bankruptcy Court for the District of Delaware (the “Delaware Court). The bankruptcy cases were jointly administered under the lead case of BLRC (the “Debtor”). The City requested that the Delaware Court transfer venue of the bankruptcy cases to the United States Bankruptcy Court for the District of Colorado (this Court). The Delaware Court denied the City's requests.

In May of 2011, the Delaware Court established procedures for the sale of substantially all of the Debtors' assets, with an auction to take place in June of 2011. The Debtor filed its Sale Motion asking the Delaware Court to approve the sale of the Debtors' assets, including the Property, free and clear of liens, claims, encumbrances, and other interests. The Debtor asserts that all Annexors were served with notice of the Sale Motion.4 No Annexor filed an objection to the Sale Motion.5 The City did file an Objection to the Sale Motion, asserting that the Property could not be sold free and clear of the Debtor's prepetition agreements with the City, including the Annexation Agreement. The City also filed a renewed motion to transfer venue of the Debtors' bankruptcy cases to this Court.

While the Sale Motion was pending, the auction was held as scheduled, with two parties participating in forty rounds of bidding to purchase the Property. Ultra Resources, Inc., the prior Plaintiff in this adversary proceeding, was declared the winning bidder. The Property was sold to Ultra for a total purchase price of $20 million, which was less than the $25.3 million first position claim secured by the Property.

At its hearing on the Sale Motion, the Delaware Court made clear that the parties needed to reach a consensual arrangement, barring which the sale would not work, and relief from stay would likely be granted to the first position secured creditor. The parties subsequently reached an agreement that severed from the Sale Hearing the resolution of their disputes as to the applicability of 11 U.S.C. §§ 363(f)(1), 363(f)(5), and 365.6 The Debtor and Ultra agreed to file an adversary proceeding seeking a declaratory judgment on those issues, and to request that the adversary proceeding be transferred to this Court for resolution.

Following the parties' agreement, the Delaware Court entered its Sale Order approving the sale of the Property to Ultra. The Debtor and Ultra (the Plaintiffs) filed the instant adversary proceeding against the City and its Enterprise, Colorado Springs Utilities (the Defendants), on September 16, 2011, and the Delaware Court promptly transferred venue of the adversary proceeding to this Court. The adversary proceeding was held in abeyance for two and a half years while the parties participated in dispute resolution efforts. In March of 2014, at the parties' request, the Court terminated the abeyance, and the parties subsequently filed the above-listed pending motions.

While the motions were pending, Ultra sold the Property to BLH No. 1, LLC, a Colorado limited liability company, BLH No. 2, LLC, a Colorado limited liability company, and Banning Lewis Holdings, LLC, a Colorado limited liability company (collectively, Banning Lewis Holdings). In connection with the sale of the Property, Ultra assigned to Banning Lewis Holdings all of its claims, rights, and interests in this adversary proceeding. The Court substituted Banning Lewis Holdings as Plaintiffs by Order entered December 12, 2014. Also on December 12, 2014, the Court heard oral...

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  • BANKRUPTCY TREATMENT OF COVENANTS RUNNING WITH THE LAND IN EXECUTORY CONTRACTS
    • United States
    • FNREL - Special Institute Midstream Oil and Gas from the Upstream Perspective (FNREL)
    • Invalid date
    ...they constitute interests in real property rather than future performance obligations. See, e.g., In re Banning Lewis Ranch Co., LLC, 532 B.R. 335, 346 (Bankr.D.Colo.2015); Gouveia v. Tazbir, 37 F.3d 295, 298 (7th Cir.1994) Sabine Oil & Gas Corporation On March 8, 2016, Judge Shelley C. Cha......

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