In re Corp..

• Decision Date: 19 April 2011
• Docket Number: No. 09 B 17575.,09 B 17575.
• Citation: 449 B.R. 323,54 Bankr.Ct.Dec. 174
• Parties: In re MULTIUT CORPORATION, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

449 B.R. 323

54 Bankr.Ct.Dec. 174

In re MULTIUT CORPORATION, Debtor.

No. 09 B 17575.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

April 19, 2011.

Eugene J. Geekie, Jr., Esq., Barry S. Hyman, Esq., Chicago, IL, and Karen V. Newbury, Esq., for Creditor Dynegy Marketing and Trade.Scott R. Clar, Esq., for Debtor Multiut Corp.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on confirmation of the first amended Chapter 11 plan of reorganization (the “Plan”) filed by Multiut Corporation (the “Debtor”) and the objections thereto filed by Dynegy Marketing and Trade (“Dynegy”). For the reasons set forth herein, the Court sustains in part Dynegy's objections and denies confirmation of the Plan. Because the Court has denied confirmation of the Plan and the case has been pending for approximately two years, the Court sets a hearing on May 24, 2011, at 10:00 a.m. to determine whether the case should be converted to Chapter 7 or dismissed.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Confirmation of a plan of reorganization is a core proceeding under 28 U.S.C. § 157(b)(2)(L).

II. FACTS AND BACKGROUND

On May 14, 2009, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. (Dynegy Ex. No. 20.) The Debtor has supplied energy consulting services since 1986 and has been solely owned by Nachshon Draiman (“Draiman”) since 1999. (Debtor Ex. No. 3 at p. 10.) Draiman also serves as president of the Debtor. (Trans. 350:24–351:2.) Draiman filed a separate Chapter 11 bankruptcy petition (09 B 17582) on May 14, 2009.

The Debtor's primary business model is to partner with clients in a “Shared Savings” program by which the Debtor would purchase natural gas for its clients from suppliers at prices lower than those offered by local companies and then share those savings with customers. (Debtor Ex. No. 3 at p. 10.) In the fall of 2003, the Debtor entered into an agreement with Better Energy Services and Technology, Inc. (“BEST”) to form Multiut, LLC, in which BEST held an eighty percent interest and the Debtor held a twenty percent interest. ( Id. at p. 12.) BEST contributed capital while the Debtor contributed customer contracts and entered into a management services contract to provide sales, administrative, and back-office services to Multiut, LLC. ( Id. at pp. 12–13.) The Disclosure Statement explains that the Debtor is entitled to reimbursement of expenses and a management fee of not less than $25,000 per month as well as a percentage of profits.¹ ( Id. at p. 13.) The Debtor operates its business from a location leased from LCF Associates (“LCF”). (Trans. 385:17–18; 385:24–386:1.) Draiman owns seventy-five percent of LCF and Ron Shabat (“Shabat”), his friend and business partner, owns the other twenty-five percent. ( Id. at 385:19–23.)

Dynegy is a Colorado general partnership with its principal place of business in Houston, Texas. The Debtor and Draiman have been involved in litigation with Dynegy since 2002. (Debtor Ex. No. 3 at pp. 10–13.) Dynegy filed a complaint against the Debtor and Draiman in the United States District Court for the Northern District of Illinois (the “Illinois Litigation”). Dynegy alleged that the Debtor failed to pay for natural gas that was delivered to it in 2000, 2001, and 2002. Draiman was named in the lawsuit as a guarantor of the payments owed by the Debtor. On June 11, 2008, the District Court entered a judgment of $15,348,244.72 plus interest against the Debtor and Draiman. (Dynegy Ex. Nos. 14 & 30.) On June 23, 2010, the District Court denied a second motion to reconsider. (Dynegy Ex. No. 30.) Thereafter, on July 16, 2010, the District Court entered an amended judgment that specified that amount with interest due to Dynegy by the Debtor and Draiman is $22,623,392.18. (Dynegy Ex. Nos. 14 & 30.) An appeal is pending before the Seventh Circuit and oral arguments were set for January 12, 2011. (Trans. 76:22–77:3.)

The Debtor filed a lawsuit against Dynegy in December 2004 in the District Court for the Northern District of Illinois. (Debtor Ex. No. 3 at p. 14.) In this suit, the Debtor alleged that Dynegy violated the Sherman Antitrust Act, the Illinois Consumer Fraud and Deceptive Trade Practices Act, and committed fraud. ( Id.) Specifically, the Debtor alleged that Dynegy intentionally manipulated price indices resulting in improperly higher charges to its customers, including the Debtor. In January 2005, that case was transferred to a multi-district docket pending in the United States District Court of Nevada (the “MDL”). ( Id. at pp. 14–15.) In January 2010, Dynegy filed a motion for partial summary judgment challenging the Debtor's fraud and Illinois Consumer Fraud and Deceptive Practices Act claims. ( Id. at p. 15) The motion is fully briefed and awaiting a decision from the District Court. ( Id. at pp. 15–16.)

In April 2010, the Debtor and Draiman filed a malpractice claim in the District Court for the Northern District of Illinois against Greenberg Traurig, LLP (“Greenberg”) based upon its representation of the Debtor and Draiman in the Illinois Litigation and the MDL. ( Id. at pp. 16–17.) The Debtor alleges that Greenberg failed to preserve the Debtor's ability to participate in the MDL. ( Id. at p. 16.) In December 2010, the District Court granted the Debtor and Draiman leave to file an amended complaint. Multiut Corp. v. Greenberg Traurig, LLP, No. 10 C 3238, 2010 WL 5018538, at *5 (N.D.Ill.Dec.2, 2010). (Dynegy Ex. No. 31.)

On November 11, 2009, Dynegy filed a proof of claim against the Debtor in the sum of $22,750,716.54. (Dynegy Ex. No. 6.) The Debtor filed an objection to that claim. (Docket No. 180.) On August 16, 2010, the Court overruled the Debtor's objection to Dynegy's claim because it had already been adjudicated on the merits by the District Court in Dynegy's favor. (Docket No. 207.) Also on November 11, 2009, Greenberg filed its proof of claim in the sum of $1,073,189.30. (Claims Register, Claim No. 10.)

The Debtor filed the Plan on February 16, 2010 (Debtor Ex. No. 2),² and a second amended disclosure statement (the “Disclosure Statement”) on May 11, 2010. (Debtor Ex. No. 3.) ³ The Disclosure Statement was approved by this Court on October 7, 2010. (Docket No. 221.) There are four classes under the Plan, two of which are impaired. (Debtor Ex. No. 2 at pp. 11–12.) Only Class 2, Dynegy's class, voted to reject the Plan. (Docket No. 292.)

The Plan proposes to pay administrative claims in full on the effective date (the “Effective Date”) of the Plan. (Debtor Ex. No. 3 at p. 1.) Those claims are estimated to be approximately $70,000. ( Id.) Priority claims, estimated to be around $100,000, are to be paid in full over a five-year period. ( Id. at p. 2.) The Debtor disputes a priority claim asserted by Philip Selman, a former employee, in the amount of $194,000. ( Id. at pp. 2 & 5.)

The Plan divides all other creditors into four classes. Class 1 is the claim of Cole Taylor Bank which holds a collateral assignment of a beneficial interest and note to certain real property located at 9824 South Michigan Avenue in Chicago, Illinois (the “Michigan Avenue Property”). ( Id. at p. 6; Trans. 356:3–17.) Class 3 consists of all general unsecured claims, estimated to be approximately $305,000, excluding insider claims, which are to be paid pro-rata on a quarterly basis over two years. (Debtor Ex. No. 3 at p. 7.) Class 4 is the claim of Draiman representing his one hundred percent shareholder interest in the Debtor. ( Id.)

Class 2 comprises the disputed claims of Dynegy, Greenberg, and the combined claims of Jack Gore and his attorney Larry D. Drury (the “Gore Claim”). ( Id. at pp. 6–7.) The Disclosure Statement estimates the Class 2 claims at around $17 million. ( Id. at p. 2.) It is important to note that the Disclosure Statement was filed prior to the District Court amending Dynegy's judgment to reflect interest, for a total of over $22 million. The Debtor did not file an amendment to the Disclosure Statement to reflect that change in judgment. Likewise, the Debtor did not file an amendment to reflect the settlement of the Gore Claim.⁴ (Debtor Reply at p. 4 n. 2.)

Dynegy filed objections to the Plan and the Court set an evidentiary hearing. A trial was held on December 13, 14, and 16, 2010, to consider confirmation of the Plan and the objections thereto. Based upon the testimony and evidence presented to the Court at the confirmation hearing, the Court makes the following findings of fact and conclusions of law.

III. APPLICABLE STANDARDS

Section 1129 of the Bankruptcy Code sets forth the substantive requirements for confirmation of a Chapter 11 plan. In order to be confirmed, a plan must satisfy § 1129(a)(1)-(16). See In re 203 N. LaSalle St. P'ship, 126 F.3d 955, 960 (7th Cir.1997), rev'd on other grounds, 526 U.S. 434, 119 S.Ct. 1411, 143 L.Ed.2d 607 (1999). A plan that satisfies every part of § 1129(a), except for subsection (a)(8), may be confirmed by “cram down” under § 1129(b) if the plan does not discriminate unfairly between impaired classes and is fair and equitable to the rejecting classes. Id. at 961; In re S. Beach Sec., Inc., 376 B.R. 881, 887 n. 11 (Bankr.N.D.Ill.2007); In re Rusty Jones, Inc., 110 B.R. 362, 373 (Bankr.N.D.Ill.1990).

“The proponent of the plan bears the burden of establishing that each requirement set forth in § 1129(a) has been met.” In re Sentinel Mgmt. Group, Inc., 398 B.R. 281, 292 (Bankr.N.D.Ill.2008). See also In re Vita Corp., 358 B.R. 749, 750 (Bankr.C.D.Ill.2007), aff'd, 380 B.R. 525 (C.D.Ill.2008). The proponent must meet its burden by a preponderance of the evidence. S. Beach Sec., 376 B.R. at 887; In re Repurchase Corp., 332 B.R. 336, 342 (Bankr.N.D.Ill.2005), aff'd, No. 05...