In re Four Wells Ltd., 15-8020
| Decision Date | 12 April 2016 |
| Docket Number | No. 15-8021,No. 15-8022,No. 15-8023,No. 15-8020,15-8020,15-8021,15-8022,15-8023 |
| Parties | In re: FOUR WELLS LIMITED (15-8020); CAPITAL L CORP. (15-8021); CIRCLE T FARM, INC. (15-8022); T X FOUR HOLDINGS, LLC (15-8023), Debtors. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit |
In re: FOUR WELLS LIMITED (15-8020); CAPITAL L CORP. (15-8021); CIRCLE T FARM, INC.
(15-8022); T X FOUR HOLDINGS, LLC (15-8023), Debtors.
No. 15-8020
No. 15-8021
No. 15-8022
No. 15-8023
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
Argued: March 1, 2016
April 12, 2016
By order of the Bankruptcy Appellate Panel, the precedential effect of this decision is limited to the case and the parties pursuant to 6th Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).
File Name: 16b0006n.06
Appeal from the United States Bankruptcy Court for the Northern District of Ohio at Akron.
Nos. 14-51269; 14-51270; 14-51272; 14-51273.
Before: HARRISON, PRESTON, and WISE, Bankruptcy Appellate Panel Judges.
COUNSEL
ARGUED: Michelle DiBartolo-Haglock, THOMAS, TRATTNER & MALONE, LL, Akron, Ohio, for Appellants. Evan T. Byron, CHERNETT WASSERMAN, LLC, Cleveland, Ohio, for Appellee Dollar Bank. ON BRIEF: Michelle DiBartolo-Haglock, THOMAS, TRATTNER & MALONE, LL, Akron, Ohio, for Appellants. Evan T. Byron, R. Scott Heasley, CHERNETT WASSERMAN, LLC, Cleveland, Ohio, for Appellee Dollar Bank. Alan J. Statman, William B. Fecher, STATMAN, HARRIS & EYRICH, LLC, Cincinnati, Ohio, for Appellee Fifth Third Bank.
OPINION
C. KATHRYN PRESTON, Chief Bankruptcy Appellate Panel Judge. This appeal arises from the bankruptcy court's orders on the motion of Dollar Bank, Federal Savings Bank ("Dollar Bank") to dismiss the jointly administered Chapter 11 cases of Four Wells Limited ("Four Wells"), Circle T Farm, Inc. ("Circle T"), Capital L Corp. ("Capital L"), and T X Four Holdings,
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LLC ("TX Four") (collectively, "Debtors"). After a hearing at which the bankruptcy court did not take evidence, the court found that (1) Debtors were chronically late in filing their monthly operating reports and paying their quarterly fees to the United States Trustee; (2) there was no realistic likelihood of reorganization; and (3) Debtors filed and prosecuted their Chapter 11 cases in bad faith. The bankruptcy court dismissed Debtors' cases, and enjoined Debtors from filing another bankruptcy petition under any chapter of the Bankruptcy Code for a period of one (1) year. In each of their respective cases, Debtors timely filed a notice of appeal. For the reasons stated below, the Panel AFFIRMS in part, and REVERSES in part.
The issues on appeal are (1) whether the bankruptcy court erred by not holding hearings on the Chapter 11 Plan and Disclosure Statement in accordance with 11 U.S.C. § 1128 and Federal Rule of Bankruptcy Procedure 3017; (2) whether the bankruptcy court erred in dismissing Debtors' jointly administered Chapter 11 cases under 11 U.S.C. § 1112(b); (3) whether the bankruptcy court erred in determining Debtors had acted in bad faith; and (4) whether the bankruptcy court erred in enjoining Debtors from filing another bankruptcy petition for a period of one (1) year.
The Bankruptcy Appellate Panel of the Sixth Circuit (the "Panel") has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (quotation marks and citations omitted). "An order granting a motion to dismiss a Chapter 11 case for cause is final for purposes of appeal." In re Lee, 467 B.R. 906, 910-11 (B.A.P. 6th Cir. 2012) (citing AMC Mortg. Co. v. Tenn. Dep't of Revenue (In re AMC Mortg. Co.), 213 F.3d 917, 920 (6th Cir. 2000).
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The issue of whether a bankruptcy court must hold a hearing on a disclosure statement and Chapter 11 plan involve purely questions of law which are reviewed de novo. See Deutsche Bank Nat'l Trust Co. v. Tucker, 621 F.3d 460 (6th Cir. 2010) (statutory interpretation and application reviewed de novo). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007). Essentially, the reviewing court decides the issue "as if it had not been heard before." Mktg. & Creative Solutions, Inc. v. Scripps Howard Broad. Co. (In re Mktg. & Creative Solutions, Inc.), 338 B.R. 300, 302 (B.A.P. 6th Cir. 2006) (citation omitted).
Rulings on motions to dismiss a bankruptcy case and whether to bar a debtor from filing a subsequent case are reviewed for an abuse of discretion. Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir. 2007); Cusano v. Klein (In re Cusano), 431 B.R. 726, 730 (B.A.P. 6th Cir. 2010). "An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard." Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288, 296 (B.A.P. 6th Cir. 2008) (quotation marks and citation omitted). "An abuse of discretion is defined as a 'definite and firm conviction that the [court below] committed a clear error of judgment.'" Mayor of Baltimore v. West Virginia (In re Eagle-Picher Indus., Inc.), 285 F.3d 522, 529 (6th Cir. 2002) (citing Soberay Mach. & Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 770 (6th Cir. 1999)). In reviewing a trial court's decision under the "abuse of discretion" standard,"[t]he question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." Barlow v. M.J. Waterman & Assocs. (In re M.J. Waterman & Assocs.), 227 F.3d 604, 608 (6th Cir. 2000) (citations omitted).
The court's findings of fact, including whether the Debtor acted in bad faith, are reviewed under the clearly erroneous standard. See Alt v. United States (In re Alt), 305 F.3d 413, 420 (6th Cir. 2002). "A finding of fact is clearly erroneous 'when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.),
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486 F.3d 940, 944 (6th Cir. 2007) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)).
Cusano, 431 B.R. at 730.
On May 17, 2014, Debtors and Personal Management Group Incorporated ("PMGI") filed their petitions for relief under Chapter 11 of the Bankruptcy Code, in the United States Bankruptcy Court, Northern District of Ohio.1 Each Debtor and PMGI are wholly owned by Louis A. Telerico, as trustee of the Louis A. Telerico Amended and Restated Revocable Trust, dated February 1, 2010. Upon the motion of Debtors and PMGI, the bankruptcy court ordered the joint administration of Debtors' and PMGI's respective cases.2
Debtors' core businesses are the acquisition and sale of real estate. As of the commencement of Debtors' cases, Debtors owned several unique parcels of real estate, all located in Aurora, Ohio: Four Wells owned 206.09 acres of undeveloped land that was zoned as timberland (the "Four Wells Property"); TX Four owned 161.526 acres of developed and undeveloped land that was zoned as residential and agricultural (the "TX Four Property"); Circle T owned 18.39 acres of undeveloped land that was zoned as residential and agricultural (the "Circle T Property"); and Capital L owned 62.66 acres of vacant land (the "Capital L Vacant Property"), and a 19.28 acre parcel of property located at 1340 Page Road, Aurora, Ohio 44202, with a 33,000 square foot retail building (the "Capital L Page Road Property"). The only regular income produced by any Debtor is rental income from the commercial building on the Capital L Page Road Property. Any other income attributable to Debtors has been from the sale of real estate. Debtors do not have any employees.
The Four Wells Property, the TX Four Property, the Circle T Property, and the Capital L Vacant Property are all encumbered by a first mortgage held by Dollar Bank, and a second
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mortgage held by First National Bank ("First National"). The Capital L Page Road Property is encumbered by a first mortgage held by Fifth Third Bank ("Fifth Third"), a second mortgage held by First National, and a judgment lien of Dollar Bank. As of the petition date, the amount due on the loan secured by the first mortgages and judgment lien of Dollar Bank was approximately $3,117,256.95, the amount due on the loan secured by the mortgage of Fifth Third was approximately $648,148.84, and the amount due on the loan secured by the mortgages of First National was approximately $1,520,363.02.
On May 19, 2014, Debtors filed a motion for use of cash collateral, whereby Debtors sought court authority to use the collateral of Fifth Third - namely, cash on hand, rent, and post-petition proceeds of account receivables generated from the Capital L Page Road Property - to fund business operations (the "Cash Collateral Motion"). On July 25, 2014, the Court entered an agreed order between Debtors and Fifth Third providing for Capital L's interim use of cash collateral to pay certain listed expenses of Capital L's business for the months of June through August, 2014. On September 11, 2014, Capital L's use of cash collateral was extended by agreed order until the earlier of November 28, 2014, or confirmation of a Chapter 11 plan. Under the terms of both agreed orders, Capital L was to make monthly adequate protection payments to Fifth Third in the amount of $3,980.00. There is no indication that Capital L defaulted on any such...
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