Dworsky v Canal Street Ltd. Partnership, 110801 FED8, 01-6019

Docket Nº:01-6019
Party Name:Dworsky v Canal Street Ltd. Partnership
Case Date:October 02, 2001
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

IN RE: CANAL STREET LIMITED PARTNERSHIP DEBTOR.

ROSS DWORSKY, APPELLANT,

v.

CANAL STREET LIMITED PARTNERSHIP, APPELLEE.

No. 01-6019 MN

United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT

Submitted: October 2, 2001

November 8, 2001

Appeal from the United States Bankruptcy Court for the District of Minnesota

Before Koger, Hill and Schermer, Bankruptcy Judges.

Schermer, Bankruptcy Judge.

The creditor, Ross Dworsky, ("Creditor") appeals the bankruptcy court's(FN1) order denying the Application of Creditor for Order Reopening Chapter 11 Case. We have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.

ISSUE

The issues on appeal are: (1) whether the Creditor has standing to appeal from the bankruptcy court's order denying his Application for Order Reopening the Chapter 11 case; (2) whether a hearing must be granted upon application to reopen a closed chapter 11 case; (3) whether the bankruptcy court abused its discretion when it denied Creditor's Application for Order Reopening the Chapter 11 case; and (4) whether Local Rule 5010-1 adopted by the Bankruptcy Court for the District of Minnesota is unconstitutional because it allows the court to rule on the application without conducting a hearing. We conclude that: (1) the Creditor has standing to appeal the bankruptcy court's order; (2) a hearing is not required for a bankruptcy court to rule on an application to reopen a closed chapter 11 case; (3) the court did not abuse its discretion when it denied the Creditor's Application for Order Reopening the Chapter 11 case; and (4) Local Rule 5010-1 is constitutional.

BACKGROUND

Canal Street Limited Partnership ("Debtor") was formed in 1985 for the purpose of acquiring, renovating, and operating a multi-use office building known as the Crown Roller Mill Building ("Crown Roller Mill"). The Crown Roller Mill is owned by the Debtor and is its only significant asset. Some of the financing for the acquisition, renovation and operation of Crown Roller Mill was provided by the issuance and sale of Commercial Development Revenue Bonds ("Canal Bonds"). National City Bank of Minneapolis ("NCB") was named trustee in connection with the issuance of the Canal Bonds pursuant to the terms of an Indenture of Trust between MCDA and NCB.

On September 14, 1990, an involuntary bankruptcy petition was filed against the Debtor and on October 1, 1990, an order for relief under chapter 11 of the Bankruptcy Code was entered. That chapter 11 proceeding resulted in confirmation of the Debtor's Plan of reorganization on October 16, 1991. On January 4, 1996, the Debtor filed a second chapter 11 and on May 8, 1996, the Debtor's Second Amended Plan of Reorganization (the "Plan") was confirmed. The Debtor's Plan preserved certain pre-existing rights, duties, and remedies running between the Debtor and the members of the class of bondholders that had been fixed by the first confirmed plan. The terms clearly contemplated that upon default by the Debtor, bondholders' interests could be advanced by foreclosure of the mortgage that secured the original bond issue. After substantial consummation of the Plan, the chapter 11 case was closed by an order and final decree entered on August 13, 1996.

Some time after the 1996 chapter 11, the Creditor purchased approximately 50% of the outstanding Canal Bonds from parties who were bondholders in the 1996 chapter 11, subject to all post-confirmation rights and obligations. It is the Creditor's belief that Debtor has materially defaulted under the terms of the 1996 Plan by not making distributions to holders of its revenue bonds from Excess Cash Flow, a defined term in the Plan meaning revenue from the Crown Roller Mill minus operating expenses, current and prior taxes, and certain required reserves. The Creditor asserted that this default is sufficient cause to reopen the closed chapter 11 case, notwithstanding the passage of five years. On February 28, 2001, the Creditor requested that the United States Bankruptcy Court for the District of Minnesota reopen Debtor's 1996 chapter 11 case in order to convert to chapter 7 or to dismiss. Pursuant to Local Rule 5010-1, a request to reopen a case shall be made by application. This rule also provides that the court may rule on the application without conducting a hearing.

On March 21, 2001, the bankruptcy court issued an order denying the application for order reopening the Debtor's chapter 11 case. The court held that in the ordinary course of reorganization under the Bankruptcy Code, "confirmation of a plan vests all of the property of the [bankruptcy] estate in the debtor." 11 U.S.C.§ 1141(b).(FN2) Because the Debtor's confirmed Plan contained no language to the contrary, all property of the Debtor re-vested in the Debtor upon confirmation in May, 1996. Therefore, there would be no assets for a trustee under chapter 7 to administer were the chapter 11 converted. Liquidation could not occur and Creditor's best interests could not be served.

STANDARD OF REVIEW

The facts are not in dispute. We review the bankruptcy court's decision not to reopen for an abuse of discretion. See Arleaux v. Arleaux, 210 B.R. 148, 149 (B.A.P. 8 th Cir. 1997); Citizens Bank & Trust Co. v. Case (In re Case), 937 F.2d 1014, 1018 (5 th Cir. 1991); In re Herzig, 96 B.R. 264, 266 (B.A.P. 9 th Cir. 1989). Under an abuse of discretion standard, this court cannot reverse the bankruptcy court's ruling unless it has a definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors. See In re Kieffer-Mickes, Inc., 226 B.R. 204 (B.A.P. 8 th Cir. 1998)(citing In re Nelson, 223 B.R. 349, 352 (B.A.P. 8 th Cir. 1998)). A court abuses its discretion if it fails to exercise that discretion or if it makes a decision without providing reasons. See ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1459 (10 th Cir. 1995).

DISCUSSION

(1) Creditor's standing to appeal from the bankruptcy court's order.

On appeal, the Debtor challenges the standing of the Creditor to seek the relief requested. Standing is an element of federal subject matter jurisdiction which cannot be waived and may be raised at any time by a party or by the court. See In re Popkin & Stern, 266 B.R. 146, 152 (B.A.P. 8 th Cir. 2001); Magee v. Exxon Corp., 135 F.3d 599, 601 (8 th Cir. 1998). If the Creditor does not have standing, then this court does not have jurisdiction to decide any other issues raised on appeal. See id.

Under § 350(b), "a case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." Rule 5010 specifies the parties who may invoke § 350(b). It states: "A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the code." Fed. R. Bankr. P. 5010. The definition of a party in interest is broadly defined in §1109(b) to include the debtor, the trustee, a creditor's committee, an equity security holder's committee, a creditor, an equity security holder, or any indenture trustee. The case law on standing in the circumstance of reopening a closed case has been confined to debtors, creditors, and trustees with a particular and/or direct stake in the reopened case. See In re Alpex Computer Corp., 71 F.3d 353, 356 (10 th Cir. 1995). To appeal from an order of the bankruptcy court, the appellants...

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