In re Central Jersey Airport Services, LLC, 02-52830 (WHG).

• Decision Date: 20 August 2002
• Docket Number: No. 02-52830 (WHG).,02-52830 (WHG).
• Citation: 282 B.R. 176
• Parties: In re CENTRAL JERSEY AIRPORT SERVICES, LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

282 B.R. 176

In re CENTRAL JERSEY AIRPORT SERVICES, LLC, Debtor.

No. 02-52830 (WHG).

United States Bankruptcy Court, D. New Jersey.

August 20, 2002.

COPYRIGHT MATERIAL OMITTED

Richard Trenk, Esq., Rabinowitz, Trenk, Lubetkin & Tully, West Orange, NJ, for Central Jersey Airport Services, LLC.

Michael Kahme, Esq., Hill Wallack, Princeton, NJ, for the Bauer Group.

Allison Berger, Esq., Fox Rothschild O'Brien & Frankel LLP, Lawrenceville, NJ, Jay Ochroch, Fox Rothschild O'Brien & Frankel LLP, Philadelphia, PA, for Kenneth Pizzo and KSP Airport Development Group.

PROCEDURAL HISTORY

WILLIAM H. GINDIN, Bankruptcy Judge.

The debtor, Central Jersey Airport filed a voluntary Chapter 11 petition on March 12, 2002. The parties first appeared before the court on March 18, 2002 on a Motion to Dismiss filed by the Bauer group, a Retention Motion and a Cash Collateral Order. The retention motion was granted and the use of cash collateral was allowed. The Motion to Dismiss was adjourned until June 12, 2002. Prior to the June 12, 2002 hearing, the Bauer group and the debtor reached a settlement and moved for court approval of the settlement agreement. After a hearing, wherein the sole objector was Kenneth Pizzo, the court approved the settlement agreement between the Bauer group and the debtor.

Presently before the court are several motions. Pizzo and KSP Airport filed a Motion for Reconsideration of the court's approval of a settlement agreement, and a Cross-Motion to Dismiss alleging that the debtor filed its petition in bad faith. The debtor filed a Motion to Reject an agreement of sale between the debtor and Mr. Pizzo, pursuant to 11 U.S.C. § 365 and a Motion to Extend the exclusivity period pursuant to 11 U.S.C. § 1121(d). Pizzo filed a Motion for Stay Relief and Abstention.

All motions and responses were timely and properly filed with the court. The court heard oral argument on the motions on July 10, 2002 and reserved decision.

JURISDICTION

The court has jurisdiction over the instant matter pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. Venue is properly in this district pursuant to 28 U.S.C. § 1408.

FACTS

The debtor in possession, Central Jersey Airport Services LLC ["CJA"] owns and operates an airport which is located on approximately 123 acres of land in Hillsborough Township, Somerset County, New Jersey. The airport also owns machinery and equipment used in its operations. Approximately 37,000 take offs and landings occur at the airport each year.

Additionally, the debtor's property is environmentally contaminated. Environmental studies were performed on the property, and the debtor prepared and continues to comply with a remediation plan approved by the NJDEP.

CJA is organized as a Limited Liability Company and is controlled by five members, Joseph Horner, Steven Richard, Robert Bauer, John Kerwin and Greg Egnatuk. The chapter 11 petition was filed by Horner. After the filing, Bauer, Kerwin and Egnatuk ["the Bauer Group"] filed a motion to dismiss the petition alleging that Horner did not have corporate authority to file the petition. The motion was amicably resolved amongst the debtor's managing members pursuant to a settlement agreement approved by the court.

Pursuant to the settlement agreement, Bauer holds a note secured by the debtor's property for $3,600,000 the balance of which is due in December 2002. If the note is not paid at that time, a deed to the property will be delivered to Robert Bauer. Additionally, the Bauer Group and Horner settled their corporate governance differences and the Bauer Group's Motion to Dismiss was voluntarily withdrawn.

Kenneth Pizzo objected to the settlement agreement between CJA and the Bauer Group. Pizzo's objections stem from an agreement of sale for the debtor's property executed on or about December 30, 1998. Subsequent to the agreement, Pizzo assigned all his right title and interest in the debtor's property to KSP Airport Development Group ["KSP"]. Pizzo sought to purchase the property for residential and possibly commercial development. The purchase price for the property was to be determined by the number of approved market units to be built on the premises. The number of units to be built was subject to land development approvals. The agreement of sale set the purchase price by multiplying the per unit purchase price times the number of approved units, with a minimum purchase price of $5,000,000.

Under the agreement, KSP would pay a deposit of $600,000 and an additional $1,900,000 upon the debtor's compliance with the remediation plan. The sale agreement contained many other stipulations requiring performance by both CJA and KSP.

On or about January 2, 2002, KSP initiated state court proceedings against the debtor seeking specific performance of the sale agreement. As a result of the debtor's bankruptcy filing, the state court proceedings were stayed on March 12, 2002.

DISCUSSION

On July 10, 2002, the court held a hearing wherein KSP argued for dismissal of the debtor's Chapter 11 petition on the grounds that the petition was filed in bad faith, or in the alternative for stay relief to proceed with its state court actions for specific performance.

Bad Faith

Section 1112(b) affords the court the discretion to dismiss or convert a bankruptcy case, after a notice and hearing "for cause". 11 U.S.C. § 1112(b). The code provides a non exclusive list of ten factors which constitute cause. See 11 U.S.C. § 1112(b)(1)-(10). The legislative history of section 1112(b) explains that courts are afforded the discretion to dismiss a case when doing so is in the best interests of creditors. "The court will be able to consider other factors as they arise, and to use its equitable powers to reach an appropriate result in individual cases." H.R.Rep. No. 595, 95th Cong., 1st Sess 405-06 (1977), U.S.Code Cong. & Admin.News 1978, pp.5963, 6362.

Courts dismissing Chapter 11 cases for "bad faith" have done so based on a combination of factors.¹ As the Third Circuit noted in SGL Carbon,"courts have not been unanimous about what constitutes good faith in the Chapter 11 filing context." In re SGL Carbon, 200 F.3d 154, 165 (3d cir.1999), citing In re Trident, 52 F.3d 127, 131 (6th Cir.1995)(considering eight factors for good faith consideration); In re Marsch, 36 F.3d 825, 828-29 (9th Cir.1994)(explaining differing approaches to a good faith finding.) (further citations omitted.). Accordingly, the Third Circuit adopted a "totality of facts and circumstances" approach in analyzing the good faith requirement. In re SGL Carbon, 200 F.3d 154, 165 (3d Cir.1999), citing In re Trident, 52 F.3d 127, 131 (6th Cir.1995); In re Marsch, 36 F.3d 825, 828-29(9th Cir.1994)(further citations omitted).

Movant seeks a dismissal of debtor's Chapter 11 petition on the grounds that the petition was filed in bad faith. Movant argues that the petition was filed in bad faith because 1.) aside from insiders, the debtor has approximately $23,000 in unsecured debt, 2.) the case involves a two party dispute between the debtor and KSP, 3.) the petition was filed "on the heels" of KSP's filing of its state court action for specific performance, and 4.) the sole purpose of the debtor's filing was to reject the Pizzo contract.

Regarding movant's factual contentions, on its petition, the debtor lists assets totaling $7,000,000 and liabilities totaling $3,000,000, of which approximately $874,000 is unsecured debt. KSP's argument that there is roughly $23,000 in unsecured debt is unavailing. Whether the $874,000 in unsecured debt is owed to the debtor's affiliates and managing members is irrelevant, as it is still indebtedness for which the debtor is liable. Clearly, the debtor is an eligible debtor under 11 U.S.C. § 109.

Equally unpersuasive is KSP's argument that the case represents a two party dispute. The debtor's petition lists two other state court actions involving parties other than KSP, and the court's list of creditors contains 13 creditors, not including Pizzo and KSP Airport Development Group. The court finds that this case involves multiple parties and creditors, and cannot be characterized as a two party dispute.

A further consideration for the court is the fact that the debtor was solvent at the time of its filing. As stated above, on it's petition, the debtor lists assets totaling 7 million and liabilities of only 3 million. This factor, however, is not controlling in the court's determination for several reasons. First, a careful reading of 11 U.S.C. § 109 reveals no requirement of insolvency for the filing of a Chapter 11 proceeding. Second, case law, as well, clearly establishes that a debtor need not be insolvent at the time of filing. In re SGL Carbon, 200 F.3d at 163, citing In re The Bible Speaks, 65 B.R. 415, 424 (Bankr.D.Mass.1986); In re Talladega Steaks, Inc., 50 B.R. 42, 44 (Bankr.N.D.Ala.1985).

Third, it must be pointed out that the airline industry as a whole is experiencing financial difficulties and there is no reason that a debtor airport which seeks the protection of the bankruptcy court to prevent further financial distress should not be permitted to reorganize. At the hearing on these motions, the debtor presented evidence that the State of New Jersey is taking steps to continue the operations of smaller airports, like Central Jersey Airport, because they facilitate business operations throughout the State. Based on the public policy of the state in facilitating businesses through accessibility to smaller airports throughout the state, and the financial distress of the airport industry as a whole, the debtor has a legitimate and valid purpose for seeking the protection of the bankruptcy laws regardless of its solvency at the time of filing.

KSP asserts that the petition was filed in bad faith because it was filed at the same time that Pizzo sought specific performance of the sale agreement in state court. As such, movant suggests that the debtor filed its...