In re Db Capital Holdings Llc

• Decision Date: 25 May 2011
• Docket Number: Nos. 10–25805 MER,10–36493 MER,10–39584 MER.,s. 10–25805 MER
• Citation: 454 B.R. 804
• Parties: In re DB CAPITAL HOLDINGS, LLC, Debtor.In re Dancing Bear Development, LLC, Debtor.In re Dancing Bear Land, LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

454 B.R. 804

In re DB CAPITAL HOLDINGS, LLC, Debtor.In re Dancing Bear Development, LLC, Debtor.In re Dancing Bear Land, LLC, Debtor.

Nos. 10–25805 MER

10–36493 MER

10–39584 MER.

United States Bankruptcy Court, D. Colorado.

May 25, 2011.

Robert Padjen, Englewood, CO, for Debtor.

ORDER ON OUTSTANDING MOTIONS

MICHAEL E. ROMERO, Bankruptcy Judge.

The above-captioned cases come before the Court on the following matters:

• West LB, AG's Motion for an Order Granting Relief from the Automatic Stay Pursuant to 11 U.S.C. § 361(d) in all cases;

• Debtors' Second Motion for an Order Pursuant to 11 U.S.C. §§ 105, 361, 362, 363, 364 and 502(1) Approving Postpetition Financing, (2) Granting Liens and Providing Superpriority Administrative Expense Status, (3) Granting Adequate Protection, and (4) Modifying Automatic Stay filed in Case No. 10–25805 MER, In re DB Capital Holdings, LLC and Case No. 10–39584 MER, In re Dancing Bear Land, LLC.

• Aspen HH Ventures, LLC's Motion for Appointment of Chapter 11 Trustee filed in Case No. 10–25805 MER, In re DB Capital Holdings, LLC.

(collectively, the “Motions”).

The Court held an evidentiary hearing on the Motions, and permitted the parties to file post-trial written closing statements. The Motions are now at issue and the Court makes the following findings of fact and conclusions of law.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a) and (b) and 157(a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (D), and (G), as it concerns the administration of the estate, obtaining credit, and motions to terminate, annul, or modify the automatic stay.

BACKGROUND FACTS¹

The three “Dancing Bear” cases pending before this Court are as follows: (1) In re Dancing Bear Land, LLC, Case No. 10–39584 MER, a voluntary Chapter 11 case filed November 23, 2010; (2) In re Dancing Bear Development, Case No. 10–36493 MER, a voluntary Chapter 11 case filed October 19, 2010; and (3) In re DB Capital Holdings, LLC, Case No. 10–25805 MER, an involuntary Chapter 11 case filed June 24, 2010, in which the order for relief was entered November 29, 2010.²

• Land is a single asset real estate debtor. Land is the owner, subject to the rights of owners of fractional interests, of the real property and improvements (the “Real Property”) associated with a luxury fractional interest residence club in Aspen, Colorado (the “Project”). The Real Property consists of two parcels of real estate situated across the street from one another. Land's sole business is the ownership and development of the Real Property. Land does not currently have equity in the Project.

• Capital owns 100% of the membership interests in Land.

• Development owns 55.6% of the membership interests in Capital. Development's equity interests are Class B interests. Aspen HH Ventures, LLC (“Aspen HH”) owns 44.4% of the membership interests in Capital. Aspen HH's equity interests are Class A interests. Aspen HH is the Class A Member of Capital and, pursuant to Sections 4.2 and 7.2 of Capital's Operating Agreement, is entitled to receive 100% of the cash available for distribution until it has received a return of its $6 million capital contribution, plus 12% interest.

• The present manager of Land is Thomas M. Di Venere (“Di Venere”), and the present manager of Capital is Dancing Bear Management, LLC (“Management”). The general partner of Development is Management.

• The Project consists of two phases. Phase I, or the Parkside Building, is the fractional interest residence club located at 411 S. Monarch Street in Aspen. Phase II, or the Mountainside Building, is the partially developed parcel located at 219 E. Durant Avenue in Aspen. Phase I contains a 9–unit condominium building, divided into 72 fractional units, as well as two restricted-income housing units that have been allocated for employees, a restaurant space, underground parking and storage, a meeting space, an exercise facility, and a rooftop deck. Thirty-two of the fractional units in Phase I have been sold, leaving 40 units still available. Phase II was conceived as an 11–unit condominium building to be divided into 80 fractional interests and one penthouse which itself may be divided into 8 fractional interests. Construction on Phase II was halted in mid–2009 and, except for some basic monitoring and maintenance for safety, drainage and snow-loading, the Phase II property has been dormant since construction was halted.

• To fund the development of the Project, Land, Capital and a subsidiary of Capital, LCH, LLC (“LCH”), obtained two loans from West LB AG (“West LB”).

- The first loan, in the maximum principal amount of $53,000,000 (the “Senior Loan”), was made through a Loan and Security Agreement dated June 15, 2006 (as amended on September 22, 2006, the “Senior Loan Agreement”), evidenced by a Promissory Note also dated June 15, 2006.

- The second loan, in the maximum principal amount of $5,000,000 (the “Second Loan” and, together with the Senior Loan, the “Loans”), was made pursuant to a Second Loan and Security Agreement dated September 22, 2006 (the “Second Loan Agreement” and, together with the Senior Loan Agreement, the “Loan Agreements”), and was evidenced by a Promissory Note, dated September 22, 2006.

• The Loans were made to Land, Capital and LCH, collectively as “Borrower.” Land and LCH ³ executed two Deeds of Trust, one senior, securing the Senior Loan, and one junior, securing the Second Loan, which were recorded against their respective properties (collectively, the “Deeds of Trust”). The Loans were further secured by, among other things: 1) separate senior and junior collateral assignments of Project-related contracts (jointly executed by all three Borrower entities), 2) separate senior and junior pledges of all of the equity in Capital jointly made by Aspen HH and Development, and 3) separate senior and junior pledges of all of the equity in Land and LCH by Capital.

• On or about March 19, 2009, West LB, Land, Capital and LCH entered into an Amendment to Loan and Security Agreement (“Senior Loan Amendment”) and an Amendment to Second Loan and Security Agreement (“Second Loan Amendment” and, together with the Senior Loan Amendment and related Loan documents, the “Loan Amendments”). During the negotiation of the Loan Amendments, West LB, the Borrower and Community Banks of Colorado (“Community Banks”) entered into Depository Agreements (the “Depository Agreements”) governing the Borrower's and West LB's respective rights to funds held in the Sales Proceeds Account and the Purchase Contract Reserve Account (the “Sales Accounts”) maintained with Community Banks.

• On June 1, 2009, Land failed to make a required interest payment and thereafter failed to make any subsequent monthly interest payments required under the Loan Documents. On October 15, 2009, the maturity date of the Loans, Land failed to repay the obligations due under the Loans. West LB declared an Event of Default under the Loan Documents by letter dated October 19, 2009.

• West LB notified Community Banks of the Event of Default under the Loan Documents and directed Community Banks to release the funds on deposit in the Sales Accounts to West LB. The Debtors instructed Community Banks to not release the funds to West LB.⁴ To date, Community Banks has not disbursed the funds in the Sales Accounts to West LB.

• As a result of this default, on or about March 12, 2010, West LB filed an action in the District Court for Pitkin County, Colorado. As part of that case, a receiver was put in place to manage the Project (the “Receiver”). Aspen HH was granted leave to intervene in the West LB receivership action on May 21, 2010, and to file its own cross-complaint for dissolution and appointment of a receiver. On May 27, 2010, the Pitkin County District Court entered an order scheduling a hearing on Aspen HH's motion to appoint a receiver.

• On or about March 10, 2010, West LB filed a Complaint for Interpleader with the District Court of Pitkin County, Colorado, seeking a determination of West LB's and the Borrower's respective rights to the Sales Accounts (the “Interpleader Action”). There have been no developments in the Interpleader Action and that action is now stayed as a result of Land's and Capital's bankruptcy cases. Because the Interpleader Action was pending at the time the Receiver was appointed and currently remains pending, the Receiver has not been able to access the funds in the Sales Accounts for the operation of the Real Property. The Sales Accounts currently contain approximately $2,672,000 of West LB's cash collateral.

• On May 27, 2010, Capital filed a voluntary Chapter 11 petition in Case No. 10–23242 MER. This case was dismissed by the Court on June 21, 2010.

• Immediately thereafter, on June 24, 2010, creditors GBDS at Snowmass, William Dennis, Fred Funk, Realty Financial Resources, Inc., and O'Bryan Partnership, filed an involuntary Chapter 11 petition against Capital, Case No. 10–25805 MER. The Court entered an order for relief in that case on November 26, 2010.

• Development and Land filed their voluntary Chapter 11 petitions on October 19, 2010, and November 23, 2010, respectively.

• The current Motions to Borrow were filed on January 11, 2011. On February 4, 2011, West LB filed an objection to the Motions to Borrow.

• In the meantime, West LB had filed its Motions for Relief from Stay which have been opposed by the Debtors.

• In addition, on January 17, 2011, Aspen HH filed a Motion to Appoint a Trustee in the Capital case, to which the three Debtors have objected.

• The Motion to Borrow filed by Land and Capital seeks approval to borrow $5,000,000 (the “DIP Facility”) on a first priority priming basis secured by all assets of the Debtors including all avoidance actions under the Bankruptcy Code. The Motion to Borrow also seeks to grant superpriority claims to Colbeck Capital Management, LLC (“Colbeck”), as...