In re Denver

• Decision Date: 17 February 2006
• Docket Number: No. 05-45287-SBB.,05-45287-SBB.
• Citation: 338 B.R. 494
• Parties: In re TCR OF DENVER, LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

338 B.R. 494

In re TCR OF DENVER, LLC, Debtor.

No. 05-45287-SBB.

United States Bankruptcy Court, D. Colorado.

February 17, 2006.

Barry K. Arrington, Arvada, CO, Counsel for TCR of Denver, LLC.

Alison E. Goldenberg, Denver, CO, Trial Attorney for the U.S. Trustee, Department of Justice.

Cynthia T. Kennedy, Kennedy SE Kennedy, P.C., Lafayette, CO, Counsel for T.S Capital, Incorporated.

AMENDED MEMORANDUM OPINION AND ORDER DISMISSING CHAPTER 11 PROCEEDING

SIDNEY B. BROOKS, Bankruptcy Judge.

THIS MATTER came before the Court on (1) the Chapter 11 scheduling conference (2) Debtor's Motion for Voluntary Dismissal of Chapter 11 Case filed December 20, 2005 (Docket # 13) and (3) U.S. Capital, Incorporated's ("Creditor") Request for Emergency Action on Debtor's Motion to Dismiss Bankruptcy filed December 22, 2005 (Docket # 17). The Court, upon reviewing the pleadings and the recent revisions to the United States Bankruptcy Code, as a result of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") — in particular the stringent and purposeful revisions to 11 U.S.C. § 1112(b) —, issued an Order directing the filing of legal briefs on the question of dismissal of a Chapter 11 case under the revised 11 U.S.C. § 1112(b).

The Court has received briefs on the issue from Creditor and Debtor, in rhyme, no less, on January 9, 2006 (Docket # s 35 and 36 respectively). Although both counsel for the parties might well win prizes for their rhyme, their briefs address the drafting problems of 11 U.S.C. § 1112(b) as crafted by Congress, if construed literally and strictly. In addition, the Court received a well-reasoned brief from the United States Trustee (Docket # 38). The Court, has reviewed the briefs of the parties, the case law, and the limited legislative history of BAPCPA, and makes the following findings of fact, conclusions of law, and Order in fairly stagnant prose.

I.Overview

This is a case where the language of BAPCPA passed by Congress tends to defy logic and clash with common sense. This is an example of a specific revision to the Bankruptcy Code, if followed by the Court and applied as Congress seems to intend — i.e., by way of strict construction — would result in an absurd decision and totally unworkable legal precedent.¹ These drafting problems have the potential of bringing the bankruptcy system to a halt while debtors, creditors, and the courts try to figure out just exactly what Congress intended. This Court would add that it appears that the largely overlooked changes to the bankruptcy provisions related to non-consumer cases, such as the case presently before the Court, may sometimes equal the poor crafting of the consumer provisions. Moreover, serious and consequential constitutional questions may be looming on the horizon because of inartful drafting.²

II.Background of this Case

On December 13, 2005, TCR of Denver, LLC ("Debtor") filed for relief under Chapter 11. Seven days later, the Debtor filed a Motion for Voluntary Dismissal of the Chapter 11 Case on December 20, 2005 (Docket # 13) followed two days later by the Creditor's Request for Emergency Action on Debtor's Motion to Dismiss filed on December 22, 2005 (Docket # 17).

Shortly after the filing of the Chapter 11 case, the United States Trustee also discovered that the Debtor was unable to maintain appropriate insurance for its sole asset, a townhouse development project known as Stanford Commons located at 9791 West Stanford Avenue, Denver, Colorado ("Property"). Moreover, the United States Trustee became advised of numerous City of Denver Ordinance zoning violations, creating a potential threat to public safety. Because there were two pending Motions to Dismiss this Chapter 11 case, the United States Trustee did not pursue dismissal.

On December 27, 2005, this Court set a hearing on the Debtor's Motion to Dismiss for January 17, 2006. On December 30 2005, the Court entered its sua sponte Order requesting the parties, including the United States Trustee, to file briefs on the issues connected with the recent revisions to 11 U.S.C. § 1112(b). The Debtor, Creditor and the United States Trustee filed briefs consistent with this Court's Order, and the Court held the hearing as scheduled.³

III.Issues

A. Under BAPCPA, whether 11 U.S.C. § 1112(b) requires a party in interest to establish all of the items constituting "cause" before a case shall be dismissed by the Court.

A. Under the new regime of BAPCPA, whether a Chapter 11 debtor may or can voluntarily dismiss a case without demonstrating all the elements of "cause" under 11 U.S.C. § 1112(b)(4). Or, in the absence of demonstrating all of the elements of "cause," under subsection (a), is the only option available to a Chapter 11 debtor conversion of the case to Chapter 7 in accordance with the exclusive language of 11 U.S.C. § 1112(a)?

IV.Discussion

A. Changes to 11 U.S.C. 1112(b) Under BAPCPA

In BAPCPA, Congress amended 11 U.S.C. § 1112(b). Section 1112(b) is set out, in part, as follows (the amended statute is shown utilizing strike-out to show extracted language and italics to show added language):

(b)(i) Except as provided in paragraph (2) of this subsection, subsection (c) of this section, and section 1104 (a) (3), on request of a party in interest or the United States trustee or bankruptcy administrator, and after notice and a hearing, absent unusual circumstances specifically identified by the court that establish that the requested conversion or dismissal is not in the best interest of creditors and the estate, the court may shall convert a case under this chapter to a case under chapter 7 of this title or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for if the movant establishes cause,

. . .

(4) For the purposes of this subsection, the term "cause" includes —

(1A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;

(2) inability to effectuate a plan;

(3) Unreasoanable delay by the debtor that is prejudicial to creditors;

(B) gross mismanagement of the estate;

(C) failure to maintain appropriate insurance that poses a risk to the estate or to the public;

(D) unauthorized use of cash collateral substantially harmful to one or more creditors;

(E) failure to comply with an order of the court;

(F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter;

(G) failure to attend the meeting of creditors convened under section 341(a) or an examination ordered under rule 2004 of the federal Rules of Bankruptcy Procedure without good cause shown by the debtor (H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any);

(I) failure timely to pay taxes owed after the date of the order for relief or to file tax returns due after the date of the order for relief;

(J) failure to file a disclosure statement, or to file or confirm propose a plan, under section 1121 of this title within any the time fixed by this title or by order of the court;

(5) denial of confirmation of every proposed plan and denial of a request made for additional time for filing an other plan or a modification of a plan; (10 K) nonpaymont of failure to pay any fees or charges required under chapter 123 of title 28;

(6 L) revocation of an order of confirmation under section 1144 of this title, and denial of confirmation of another plan or a modified plan under section 1129 of this title;

(7 M) inability to effectuate substantial consummation of a confirmed plan;

(8 N) material default by the debtor with respect to a confirmed plan;

(9 O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; or and (P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.⁴

The key word here is "and." The mended 11 U.S.C. § 1112(b)(4)(O), lists items for "cause" in the conjunctive "and" versus the former language of the statute, which used the disjunctive "or." This is clearly a deliberate and specific change in the language of the statute. The "reformed" section 1112(b)(4) makes little "common-sense"⁵ and is drafted in a manner that is quite imperfect.⁶

Nevertheless, the Court recognizes that courts have expressed that there are dangers in attempting to take statutory language too literally, and to rely too heavily on the characterization of "disjunctive" form versus "conjunctive" form to resolve issues of statutory construction.⁷ However, it appears that Congress has purposefully limited the role of this Court in deciding issues of conversion or dismissal, such that this Court has no choice, and no discretion, in that it "shall" dismiss or convert a case under Chapter 11 if the elements for "cause" are shown under 11 U.S.C. § 1112(b)(4).⁸

Further, it would appear that the use of the word "includes," as defined in the rules of construction of the Code, is not necessarily limiting. Moreover, in conjunction with the word "and" instead of "or" it does seem that, perhaps, all of the factors must be met by a moving party in interest, including a debtor-in-possession, before a case can be dismissed under Chapter 11.⁹ Specifically, as the authors of Collier on Bankruptcy noted:

It was not intended that the definitions of words used in the 1898 Act which read "shall include" should exclude other meanings. However, it was intended that words so defined would be held to include what was expressed.¹⁰

Using this analysis and proper and precise usage of the English language, it would appear that all of the fifteen (15) specifically identified factors demonstrating "cause" under 11 U.S.C. 1112(b)(4) must be shown, plus, there may be other factors to supplement the...