In re Criimi Mae, Inc., No. 98-2-3115-DK.

• Decision Date: 12 July 2000
• Docket Number: No. 98-2-3115-DK.
• Citation: 251 BR 796
• Parties: In re CRIIMI MAE, INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Maryland

251 B.R. 796 (2000)

In re CRIIMI MAE, INC., et al., Debtors.

No. 98-2-3115-DK.

United States Bankruptcy Court, D. Maryland, Greenbelt Division.

July 12, 2000.

Richard L. Wasserman, Venable, Baetjer and Howard, LLP, Baltimore, MD, Stanley J. Samorajczyk, Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington, DC, Morton A. Faller, Shulman, Rogers, Gandal, Pordy & Ecker, P.A., Rockville, MD, for debtors.

Judy G.Z. Liu, Weil, Gotshal, Manges, LLP ,New York City, Troy C. Swanson, Kincaid, Cohen & Swanson, PC, Baltimore, MD, for Citicorp Securities, Inc./Solomon Smith Barney.

MEMORANDUM OPINION

DUNCAN W. KEIR, Bankruptcy Judge.

On March 31, 2000, the debtors, CRIIMI MAE, Inc., CRIIMI MAE, Management, Inc., and CRIIMI MAE Holdings II, L.P., filed the Second Joint Amended Plan and its Amended Disclosure Statement. By Order entered February 7, 2000, this court set a hearing to consider approval of the previous filed Disclosure Statement and directed debtors to give notice of the filing of Disclosure Statement and hearing. On April 25, 2000, debtors filed with the court a Third Amended Joint Plan and Second Amended Disclosure Statement and requested that the court consider approval of the Second Amended Disclosure Statement (hereinafter "Disclosure Statement"). After a review of the Disclosure Statement in comparison with the Joint Amended Disclosure Statement, the court determined that the modifications were not material and therefore there was no required re-noticing of the Disclosure Statement before the court would conduct the hearing to consider approval.

Although initially a number of objections were filed to the Amended Joint Disclosure Statement, at the hearing on April 25, 2000 (the "Hearing"), only Citicorp Securities, Inc./Solomon Smith Barney ("SSB")¹ appeared and argued in opposition to approval of the Disclosure Statement. All other objections had been withdrawn in light of the changes set forth in the Disclosure Statement, with the exception of a hand-written objection filed by shareholder, Thomas Gill. For the reasons set forth orally by the court on the record at the Hearing, the objection to approval of Disclosure Statement by Thomas Gill was denied.

SSB argued three issues at the Hearing. Subject to the opportunity to more closely study the last minute revisions set forth in the Disclosure Statement, SSB indicated that the revisions appeared to remedy additional issues that had been raised in its written objection.

The issues argued by SSB are as follows:

1. SSB asserts that it is the owner of certain securities which it holds under a Master Repurchase Agreement dated August 1, 1997 and Annexes thereto (collectively, the "Repo Agreement"). SSB further asserts that debtor CRIIMI MAE, Inc. ("CMI") has no right of ownership in those securities. The plan provides for the sale by CMI of some of the securities (the "Disputed Securities"), on or before the confirmation date, to create funds necessary to make disbursements under the plan. If CMI is not the owner of the Disputed Securities, SSB concludes that CMI cannot legally sell the securities and therefore as a matter of law the plan cannot be confirmed.

2. SSB asserts that should the court determine that it holds a security interest in the Disputed Securities, as opposed to an ownership interest, and that the obligations and arrangements under the Repo Agreement constitute a secured lending, the sale by CMI of the Disputed Securities, without affording to SSB a right to credit bid pursuant to 11 U.S.C. § 363(k), cannot constitute fair and equitable treatment of its secured claim as required by 11 U.S.C. § 1129(b)(2). SSB asserts that any sale of the collateral of a dissenting class of secured claim must be governed by section 1129(b)(2)(A)(ii). In response debtors argue that the proposed sale of the Disputed Securities and other terms of the plan, provide SSB the indubitable equivalent of its claim under section 1129(b)(2)(a)(iii). Therefore, debtors conclude that the plan can be confirmed without compliance with the credit bid requirement incorporated into section 1129(b)(2)(A)(ii).

3. SSB asserts that the treatment of its claim, consisting of the payment to it of a portion of the proceeds from the sale of the Disputed Securities, and a portion of proceeds derived from the Disputed Securities currently held in an interpleader fund, (with the use by the debtors of the remaining proceeds from these sources to pay other claims), the amortized payment of the remaining approximate $35 Million Dollars of its claim over 4 years, (with a provision for replacement or additional collateral), does not constitute the indubitable equivalent of its claim. SSB concludes that the plan cannot be confirmed under 1129(b)(2)(A)(iii).

At a scheduling conference prior to the Hearing, the court informed the parties that objections to confirmation of the plan, as opposed to the adequacy of disclosure of information in the Disclosure Statement, would not be heard and determined at the Hearing, with limited exceptions. The exception announced was that the court (time permitting) would hear and determine objections to confirmation arising solely as a dispute of law and for which determination there was no material dispute of fact. "It is now well accepted that a court may disapprove of a disclosure statement, even if it provides adequate information about a proposed plan, if the plan could not possibly be confirmed." In re Main Street AC, Inc., 234 B.R. 771, 775 (Bankr.N.D.Cal.1999) (citing, In re Allied Gaming Management, Inc., 209 B.R. 201, 202 (Bankr.W.D.La.1997); In re Curtis Center Ltd. Partnership, 195 B.R. 631, 638 (Bankr.E.D.Pa.1996); In re 266 Washington Assocs., 141 B.R. 275, 288 (Bankr. E.D.N.Y.1992); In re Bjolmes Realty Trust, 134 B.R. 1000, 1002 (Bankr.D.Mass. 1991)).

In its argument before the court at the Hearing, SSB asserted that confirmation of the plan must be denied as a matter of law upon either and each of the first two enumerated issues set forth above. SSB conceded that the third issue, indubitable equivalence, is a question of fact, not determinable without an evidentiary hearing. See In re James Wilson Assocs., 965 F.2d 160, 172 (7th Cir.1992) ("question of whether the interest received by a secured creditor under a plan of reorganization is the indubitable equivalent of his lien is one of fact"); see also, In re Snowshoe Co., 789 F.2d 1085, 1088 (4th Cir.1986) (finding indubitable equivalence in context of 11 U.S.C. § 361(3) to be "a question of fact rooted in measurements of value and the credibility of witnesses").

Debtors in argument, supported by the committees appointed in this case, asserted that the first enumerated issue (ownership v. lien upon the Disputed Securities) involved disputed material facts. Debtors concede that the second enumerated issue (must a cramdown involving sale of collateral meet the requirements of 1129(b)(2)(A)(ii) even if Debtors offer the indubitable equivalent of the creditor's claims) was solely a dispute of law.

After denying the objection to the Disclosure Statement by creditor Thomas Gill and making partial findings as to the adequacy of the Disclosure Statement, the court held open the record of the hearing for the submission of briefs on enumerated issues 1 and 2. In doing so the court explained that it would consider the matter under the same standard applicable to a motion for summary judgment. If as a matter of law, there being no material dispute of fact, the plan could not be confirmed, approval of the Disclosure Statement would be denied. If as a matter of law, there being no material dispute of fact, the treatment proposed by the plan does not violate the law, the Disclosure Statement would be approved and remaining issues as to confirmation would be heard at the hearing upon confirmation. If the court determines the second enumerated issue in favor of debtor but concludes that there is a material dispute of fact necessary for the resolution of enumerated issue No. 1, the Disclosure Statement must be modified to disclose the existence of that dispute and upon such modification would be approved. The disputed factual issue would be heard as a part of the confirmation hearing.

The parties have submitted briefs in accordance with the court's directive. The court finds that an additional hearing as to whether issues No. 1 and 2 may be resolved as a matter of summary judgment would not aid the court in its decision on these issues.

I.

Did the Master Repurchase Agreement convey absolute ownership of the disputed securities to SSB?

The first issue identified above requires the court to determine the exact nature of the interests conveyed by CMI to SSB, by the Repo Agreement.² If the Repo Agreement in effect pledged a lien upon the securities described in the Annexes, CMI retained ownership interests which may permit its proposed use of these securities under the plan. If the Repo Agreement transferred all ownership interests in the securities and CMI retained solely a contractual right as a buyer to enforce a repurchase obligation of SSB, the plan illegally proposes to permit CMI to dispose of property (securities) that are the sole property of SSB.

The distinction between a repurchase transaction and a secured lending, while critical to an issue in this bankruptcy case, is virtually without meaning as to the practical effects of the transaction and the purposes for which it is made. It is clearly an effort by the industry of creditors dealing in this type of transaction to avoid potential unfavorable treatment that a security interest might receive in bankruptcy.³

Both security interests and repos purport to be present conveyances of property from one party in exchange for value given by another party plus an anticipated future conveyance of property from that party to the original party upon its performance of the contractual obligation. The question is, therefore, whether a

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