In re Dave's Detailing, Inc., Case No. 13-08077 (RLM)
| Decision Date | 30 July 2015 |
| Docket Number | Case No. 13-08077 (RLM) |
| Court | U.S. Bankruptcy Court — Southern District of Indiana |
| Parties | In re: DAVE'S DETAILING, INC. dba THE ALLEN GROUP Debtor. |
In re: DAVE'S DETAILING, INC. dba THE ALLEN GROUP Debtor.
Case No. 13-08077 (RLM)
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION
July 30, 2015
Chapter 11
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER UNDER 11 U.S.C. § 1129 (b) AND FED. R. BANKR. P. 3020 DENYING CONFIRMATION OF BOTH DEBTOR'S AND CREDITOR'S CHAPTER 11 PLANS
Rarely are creditors given the opportunity to choose between two competing chapter 11 plans. That opportunity exists in this case as both the debtor, Dave's Detailing, Inc. DBA The Allen Groupe ("Debtor") and its competitor and largest unsecured creditor, Appearance Group, Inc. ("AGI") have proposed plans. The Debtor's plan provides 100% payment to creditors, with interest, over time with the balance of all claims paid with a balloon payment in seven or eight years. AGI's plan provides for cash payments upon the "effective date" of the plan, albeit not in full, and the equity security holder is paid nothing and his interests are extinguished.
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Neither plan garnered the acceptances of all impaired classes as provided for in §1129(a)(8), so, if a plan is to be confirmed, it will be under the "cramdown" provisions of §1129 (b). The court held a three- day confirmation hearing beginning on June 15th and concluding on June 17th (the "Confirmation Hearing"). The Court finds that the Debtor's plan is not feasible under §1129(a)(11) and that AGI's plan improperly classified between Classes 4A and 4B and that it unfairly discriminates against Class 4B claimants and cannot be confirmed under §1122(a), §1129(a)(1) and §1129(b)(1)
Dave Allen formed the Debtor in 1991. Dave Allen is the president, CEO and sole shareholder of the Debtor. The Debtor is in the business of cleaning and detailing primarily private aircraft at airports and stocking them with sundries. It does business at 22 locations throughout the United States and employs approximately 177 employees. The Debtor owns no real estate, and its assets consist primarily of office furniture, equipment, vehicles, inventory, customer contracts, and receivables. The Debtor typically incurs startup costs for new equipment, employees, and leasehold when it expands to a new airport location. Its success in expanding to markets nationwide has been due in part to use of its "Hotlist" tracking system, a proprietary software system that prompts an aircraft owner when a cleaning is due. The Debtor has contracts with Gulfstream and Chautauqua Airlines, which operates Republic Airways ("Republic"). These two contracts account for approximately 62% of the Debtor's business. Allen also owns and controls several international entities (the "Foreign Entities") that are engaged in the airplane detailing business overseas.1
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The Debtor's business was significantly affected by the financial crisis of 2008. Increased fuel prices and the stigma attached to private corporate travel in the financial meltdown climate caused a significant decline in the use of private company jets. In 2010, the Debtor looked to expand in commercial markets and successfully won a service contract with Delta Airlines. Delta cancelled the contract when the Debtor accidentally damaged a Delta plane during servicing. The Debtor did not recoup the approximate $200,000 it had incurred in startup costs.
AGI is a competitor of the Debtor. The Debtor employed Jeffrey Groth ("Groth"), a former employee of AGI, prior to April 2010, allegedly in violation of his employment contract with AGI. AGI sued both Groth and the Debtor in a Nevada state court and alleged that the Debtor tortuously interfered with its business by inducing Groth to breach his employment agreement with AGI. The Debtor and AGI entered into a settlement agreement wherein the Debtor, without admitting liability, agreed to pay AGI $675,000, with $75,000 paid up front and the balance paid over 45 months. The Debtor also agreed to execute and deliver to AGI a confession of judgment for $1,200,000, which AGI would hold and not file or record as long as the Debtor was current on the monthly settlement payments. The Debtor paid $345,000 through January 2013. The Debtor was late on some payments and was warned that late payments would no longer be accepted. The Debtor did not pay the February 1, 2013 when it was due. AGI filed the confession of judgment on March 5, 2013, domesticated the judgment in the Marion County (Indiana) courts in April 2013, and began proceedings supplemental to execution to collect that judgment. Because of these collection efforts, the Debtor's bank account at PNC Bank was
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placed on "hold" status. The Debtor filed this chapter 11 case on July 29, 2013 (the "Petition Date").
AGI filed its proof of claim on October 17, 2013 for $873,120.90, the amount of the confession of judgment and accrued interest less payments made by the Debtor. The Debtor objected to that claim, and, after hearing, the Court overruled the objection and allowed AGI's claim in full. AGI is the Debtor's largest unsecured creditor.
Dave Allen, his wife, Melissa ("Melissa"), Robert Showalter and Leon Mordoh ("Mordoh") were directors of the Debtor as of the Petition Date. Mordoh currently is not a director. According to the proofs of claim filed by Mordoh in this case, Mordoh loaned the Debtor and Dave Allen $75,000 in May 2013 (the "Mordoh Loan"). Mordoh is the trustee of the Amended and Restated Leon M. Mordoh Revocable Trust (the "Mordoh Trust"). The Mordoh Trust loaned the Debtor $500,000 in May 2011, payment of which Dave Allen personally guaranteed. The Mordoh Trust loaned Dave Allen, Melissa Allen and the Debtor $250,000 in April 2012 (the "Mordoh Trust Loans). Mr. Mordoh made the The Mordoh Loan and the Mordoh Trust Loans he was a director of the Debtor. They are evidenced by promissory notes and secured by pledges of Dave Allen's shares of stock in the Debtor and the Foreign Entities. As of the Petition Date, Mr. Mordoh and the Mordoh Trust were owed in excess of $823,000 (collectively the "Mordoh Claims").
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Promissory notes evidenced the pre-petition private loans made to the Debtor, but determining the extent of the debtor's liability on these loans has been a reoccurring problem. Dave Allen has claimed that some of these loans were made to him directly, and that he, in turn, loaned the funds to the Debtor for which he asserts a claim against the Debtor (the "Allen Claims"). Some loans were made to the Debtor, Allen and Melissa, but a copy of the promissory note bearing Allen and Melissa's signature cannot be located.
The Debtor's schedules show that Tim Ginn ("Ginn"), former CFO of the Debtor, loaned the Debtor $205,000 between October 2010 and November 2011. Larry Zore, a former officer and director of the Debtor, loaned the Debtor $20,000 in August 2011. By the definition of "insider" provided by 11 U.S.C. §101(31)2, the Ginn and Zore loans were made while they were insiders of the Debtor. Shawn Zore loaned the Debtor $30,000 in January 2012.
Sam and Shelia Schmidt (the "Schmidts") loaned the Debtor, Dave Allen and Melissa $200,000 in August 2008. The remaining amount due on that loan as of August 2009 was restated in another promissory note in August, 2009 but only Allen and Melissa were on that note and there was no express release of the Debtor from the August, 2008 obligation. The Schmidts loaned the Debtor, Dave Allen and Melissa $250,000 in January 2011. The Schmidts wired the $200,000 and $250,000 in loan proceeds directly from their account to the Debtor. Nothing in the record indicates that the Schmidts were insiders of the Debtor.
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The Debtor scheduled the loans from Ginn, Larry Zore, Shawn Zore and the Schmidts but did not designate them as disputed, contingent or unliquidated claims and thus, none of these claimants filed a proof of claim. Yet, the Debtor objected to these "claims" on the basis that they unenforceable against the Debtor and property of the Debtor under §502(b)(1).
The Schmidts and the Debtor resolved the objection to the Schmidt claim shortly before the Confirmation Hearing. The parties agreed, and AGI consented, that the Schmidts would be allowed an unsecured claim against the Debtor for $270,000 and that the Schmidts were free to pursue collection of the $200,000 and $250,000 notes against Dave Allen and Melissa.
First Farmers Bank is the servicing agent for IBC Recovery LLC ("IBC"). IBC is the Debtor's lender and holds a first lien on essentially all of the Debtor's assets, including its receivables and inventory. As of the Petition Date, it was owed $1,633,240.15. The Debtor's Schedule D valued the collateral pledged to IBC at over $2.2 million. A cash use order was negotiated at the beginning of the case. The cash use has been extended through confirmation and the Debtor has used IBC's cash collateral in the operation of its business without incident.
It is fitting that the Debtor and AGI proposed competing plans, as this case has been a series of battles between them. AGI has been a worthy opponent. It has...
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