In re 303 Invs., Inc.

• Docket Number: Case No. 22-14267-JGR
• Decision Date: 24 June 2024
• Citation: In re 303 Invs., Inc., 662 B.R. 1 (Bankr. Colo. 2024)
• Parties: IN RE: 303 INVESTMENTS, INC., EIN: 27-2141753, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

662 B.R. 1

IN RE: 303 INVESTMENTS, INC., EIN: 27-2141753, Debtor.

Case No. 22-14267-JGR

United States Bankruptcy Court, D. Colorado

Signed June 24, 2024

Aaron A. Garber, Littleton, CO, for Debtor.

Alison Goldenberg, Denver, CO, for U.S. Trustee.

Subchapter V

ORDER CONFIRMING THIRD AMENDED PLAN

Joseph G. Rosania, Jr., United States Bankruptcy Judge.

THIS MATTER is before the Court on the Second Amended Subchapter V Plan of Reorganization, datedJanuary 29, 2024(Doc. 182) as modified by the Third Amended Subchapter V Plan, datedMarch 25, 2024(Doc. 218)(the "Plan"), filed by Debtor 303 Investments, Inc.("303").

Objections to confirmation of the Second Amended Plan were filed by Hilltop Metropolitan District(Doc. 199) and Collegiate Peaks Bank ("CPB")(Doc. 200).

The filing of the Third Amended Plan ("Plan") resulted in a stipulation which withdrew the objection by Hilltop Metropolitan District.The stipulation confirms the assessment of "impact fees" will not be impaired by the terms of the Plan.

An evidentiary hearing was held on the matter on March 26, 2024.The hearing was combined with CPB's Motion to Convert Chapter 11 Case Pursuant to 11 U.S.C. § 1112(b)(Doc. 189) and objections thereto filed by 303 (Doc. 198) and MS Man Debt, LLC("MS Man")(Doc. 201).

INTRODUCTION

Douglas County is among the fastest growing counties in the nation.Between 2020 and 2021, there was a 35.8% increase in permits issued for new housing¹. 303 commenced the development of the Hilltop Subdivision, a proposed community of custom homes on large lots in Parker, a city in Douglas County.Despite the economic growth in the area, 303's development project became mired in litigation, stalled, and is yet to be completed.

303 sought bankruptcy relief under subchapter V of chapter 11 on November 1, 2022, after a lis pendens was filed against its properties in state court litigation initiated by MS Man. 303 claims the lis pendens adversely affected its ability to continue development and "chilled" the sales of lots.

The Small Business Reorganization, commonly known as subchapter V of chapter 11, was passed by Congress in 2019 and became effective in February 2020.Subchapter V provides an easier path to confirmation and has become an increasingly popular vehicle for reorganization in light of the increased $7.5 million debt limitation².The central purposes of the legislation are to streamline the confirmation process and reduce the costs of small chapter 11cases for smaller businesses.

At the evidentiary hearing on confirmation held on March 26, 2024, the Court admitted seven exhibits consisting primarily of pleadings and other documents filed in the bankruptcy case, including the Plan and the Proof of Claim filed by CPB.The Court heard testimony from two witnesses: Derrick Myers, 303's President ("Myers") and Benjamin Martin, CPB's Senior Vice President—Commercial Lending ("Martin").

The Court finds that 303 has proposed the Plan in good faith, that the Plan is in the best interest of all creditors and parties in interest, and that the Plan is fair and equitable.Accordingly, the Court confirms the nonconsensual Plan under 11 U.S.C. 1191(b).

BACKGROUND

In 2014, Myers, through 303 Investments LLC³, bought vacant land in Douglas County to develop as a subdivision.303 Investments LLC subdivided the land and recorded a plat and covenants, conditions, and restrictions, to create the Hilltop subdivision.The Hilltop subdivision consists of thirty 2.5 acre (approximate) residential lots.The lots are located on one street, Freddy's Trail, with 11 on the east side of the street (Lots 1-11), 9 on the west side of the street (Lots 22-30), and 10 in a cul-desac at the north end of the street (Lots 12-21).

Myers is the 100% owner of 303 and the 100% owner of WilliamMRK, LLC("WilliamMRK").WilliamMRK served as the general contractor that built homes on 303's properties.

On April 18, 2019, 303 Investments LLC conveyed Hilltop subdivision Lots 12-21 to WilliamMRK.On the same day, WilliamMRK executed 10 separate Construction Loan Promissory Notes, each secured by a respective lot.The construction loans were obtained through Mainsale Capital, LLC d/b/a/ Snap.Build. MS Man is successor in interest to Mainsale Capital, LLC and the current holder of the promissory notes.

The promissory notes were guaranteed by Myers.

On August 12, 2019, 303 Investments LLC conveyed the remaining Hilltop subdivision lots to 303.Lots1-3, 6, 8-11, 22-26, and 30 were owned by 303 when the bankruptcy case was filed.

THE PROPOSED PLAN

Summary of Voting

303's creditors consist primarily of secured claimants. 303 only scheduled two general unsecured creditors: Chase Bank in the amount of $56,000 and Myers in the amount of $520,000.In addition, Road Runner submitted an unsecured ballot in the amount of $3,500 and voted to accept the Plan.

The Plan lists six classes of secured claims proposed to be satisfied through sales of real property.Three of those classes voted to accept the Plan: Berkley Bank, Class 2; Direct Lumber and Door of Colorado, Class 4; and MS Man, Class 7.

Foxworth Galbraith Lumber Company, Class 5; and Douglas County, Class 6, did not vote on the Plan and therefore are deemed to have accepted the Plan.In re Ruti-Sweetwater, Inc.,836 F.2d 1263, 1266-1267(10th Cir.1988).

CPB, Class 3, voted to reject the Plan, objected to confirmation (Doc. 200) and moved to convert the case to Chapter 7(Doc. 189).CPB is the only party which objected to confirmation.The United States Trustee did not object to confirmation.

Classification of Claims

Class 2 consists of three secured claims held by Berkley Bank.The Class2(a) secured claim was secured by Lot 3 (5264 Freddy's Trail) and paid in full when the property was sold.The Class2(c) claim was secured by real property located at 3056 S. Galapago Street, Englewood, Colorado, and paid in full when that property was sold.The Class2(b) claim in the approximate amount of $516,905.24 is secured by Lot 8 (5524 Freddy's Trail) and is proposed to be paid in full from the sale of the property within an 18-month period.

Class 3 consists of the secured claims of CPB, who voted to reject the Plan.The Class3(a) claim was secured by Lot 2 (5208 Freddy's Trail) and paid in full when the property was sold.The Class3(b) claim in the approximate amount of $819,338.12 is secured by Lot 6 (5424 Freddy's Trail) and is proposed to be paid in full from the sale of the property within a 12-month period.The Class3(c) claim in the approximate amount of $47,321.52 is secured by 767 Crossroads and is proposed to be paid in full from the sale of the property within a 12-month period.Class3(d) in the approximate amount of $624,528.95 is secured by Lot 1 (5126 Freddy's Trail), Lot 9 (5572 Freddy's Trail), Lot 10 (5622 Freddy's Trail), Lot 11 (5690 Freddy's Trail), Lot 22 (5625 Freddy's Trail), Lot 23 (5577 Freddy's Trail), Lot 24 (5531 Freddy's Trail), and Lot 25 (5483 Freddy's Trail), and is proposed to paid in full from the sale of the properties within a 12-month period. $75,000 will be paid upon the sale of Lot 9 (5572 Freddy's Trail).The remaining balance of the claim will be satisfied in equal amounts through the sale of the seven remaining properties.

Class 4 consists of the secured claim of Direct Lumber and Door of Colorado in the approximate amount of $19,339.72 and will be paid in full from the sale of Lot 9 (5572 Freddy's Trail) within an 18-month period.

Class 5 consists of the secured claim of Foxworth Galbraith Lumber Company in the approximate amount of $24,905.90 and will be paid in full from the sale of Lot 9 (5572 Freddy's Trail) within an 18-month period.

Class 6 claims held by Douglas County for secured real estate taxes will be paid in full upon the sales of the respective properties.Class6(a), in the approximate amount of $40.12, is secured by Lot 11 (5690 Freddy's Trail).Class6(b), in the approximate amount of $3,296.32, is secured by Lot 8 (5524 Freddy's Trail).Class6(c), in the approximate amount of $4,008.96, is secured by Lot 6 (5424 Freddy's Trail).Class6(f), in the approximate amount of $8,829.28, is secured by Lot 1 (5126 Freddy's Trail).Class6(g), in the approximate amount of $8,904.86, is secured by Lot 30 (5249 Freddy's Trail).

Class6(d) was satisfied from the sale of Lot 2 (5208 Freddy's Trail).Class6(e) was satisfied from the sale of Lot 3 (5264 Freddy's Trail).

Class 7 consists of MS Man's secured claim, filed in the amount of $5,246,353.08, pursuant to an amended settlement agreement incorporated into the Plan.Under the agreement, the following lots will be transferred, subject to existing liens, to MS Man: Lot 1 (5126 Freddy's Trail), Lot 10 (5622 Freddy's Trail), Lot 11 (5690 Freddy's Trail), Lot 22 (5625 Freddy's Trail), Lot 23 (5577 Freddy's Trail), Lot 24 (5531 Freddy's Trail), Lot 25 (5483 Freddy's Trail).

Additionally, 303 consents to a judgment lien in favor of MS Man in the total amount of $40,000 against Lot 8 (5524 Freddy's Trail), Lot 9 (5572 Freddy's Trail), Lot 26 (5437 Freddy's Trail), and Lot 30 (5249 Freddy's Trail).Upon the sale of the respective lots, MS Man will be paid $10,000 per lot.

$45,000 from the proceeds of the sale of Lot 2 (5208 Freddy's Trail) being held in escrow will be released to MS Man.

In addition, lots 12-21, owned by WilliamMRK, will be surrendered to MS Man.

Class 8 consists of unsecured claims, which will be paid to the extent possible from net proceeds of property sales after the satisfaction of secured claims.

A chart illustrating the properties, values, and claims is attached as EXHIBIT A.

COLLEGIATE PEAKS BANK'S OBJECTION

On January 9, 2023, CPB timely filed Proof of Claim 3-1 in the amount of $2,347,717.30.The Proof of Claim referenced four loans made to 303 and WilliamMRK.

Loan One arises from a promissory note dated April 23, 2021, provided to 303 in the original principal amount of $735,000.The loan is secured by Lot...