In re Grabanski, 10-30902

• Decision Date: 27 February 2012
• Docket Number: No. 10-30902,10-30902
• Parties: THOMAS M. GRABANSKI; MARI K. GRABANSKI, DEBTORS.
• Court: U.S. Bankruptcy Court — Northern District of Iowa

THOMAS M. GRABANSKI; MARI K. GRABANSKI, DEBTORS.

No. 10-30902

UNITED STATES BANKRUPTCY COURT DISTRICT OF NORTH DAKOTA

Dated: February 27, 2012

RULING ON OBJECTIONS TO THE DISCLOSURE STATEMENT

This matter is before the Court on objections to Debtors' Disclosure Statement. The Court held a telephonic hearing on February 8, 2012. The following parties appeared through counsel: Debtors, Thomas and Mari Grabanski; Marshall & Ilsley Bank; the Hanson-Tallackson Parties; Choice Financial Group; John and Dawn Kelley; the United States Trustee; Horse Creek Farm; PHI Financial; and Plaque River Insurance. The Court took the matter under advisement. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A)&(L).

STATEMENT OF THE CASE

M&I Marshall & Ilsley Bank ("M&I"), the Hanson-Tallackson Parties ("Hanson-Tallackson"), Choice Financial Group ("Choice"), John and Dawn Keeley (the "Keeleys"), the United States Trustee ("Trustee"), and Horse Creek Farm ("Horse Creek") filed objections to Debtors' Disclosure Statement. The parties present numerous arguments concerning inadequacies of the Disclosure Statement generally and the Statements' effect on creditors and parties individually.

The Court finds that many of the objections raise feasibility issues better addressed at confirmation. The parties do, however, raise a number of inadequacies in the Disclosure Statement unrelated to Plan feasibility. The Court sustains the parties' objections regarding the Statement's failure to: provide a description of the available assets and their values; provide the source of information stated in the disclosure statement; describe the present condition of Debtor; list scheduled claims; indicate the accounting method utilized to produce the financial information; provide the estimated value from recovery of preferential or otherwise voidable transfers; and provide a liquidation analysis setting forth the estimated return that creditors would receive under Chapter 7. As discussed during the hearing, the Court will set final hearing on the Amended Disclosure Statement with the hearing on Plan Confirmation under 11 U.S.C. § 157(d)(2)(B)(iv).

PROCEDURAL BACKGROUND

Debtors filed their Disclosure Statement on January 13, 2012. The Disclosure Statement includes one exhibit—Exhibit A- Income Projection. There is no additional supporting documentation. As noted, the following four creditors filed objections to the Statement: M&I Hanson-Tallackson; Choice; and Horse Creek. Additionally, the United States Trustee and parties-in-interest—John and Dawn Keeley—filed objections. After hearing the arguments of counsel, the Court took the matter under advisement.

CONCLUSIONS OF LAW

The requirements for, and adequacy of, disclosure statements are governed by § 1125(b) of the Bankruptcy Code which states:

An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest, unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement without a valuation of the debtor or an appraisal of the debtor's assets.

11 U.S.C. § 1125(b). "Adequate information" is defined to mean:

Information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records . . . that would enable a hypothetical reasonable investor typical of holders of claims or interest of the relevant class to make an informed judgment about the plan.

11 U.S.C. § 1125(a)(1) (emphasis added). A hypothetical reasonable investor is defined as:

"investor typical of holders of claims or interests of the relevant class" means investors having-

(A) A claim or interest of the relevant class;

(B) Such a relationship with the debtor as the holders of other claims or interest of such class generally have; and

(C) Such ability to obtain such information from sources other than the disclosure required by this section as holders of claims or interests in such class generally have.

11 U.S.C. § 1125(a)(2). It is thus specifically presumed that such an investor will have the "ability to obtain such information from sources other than the disclosure required by this section as holders of claims or interests in such class generally have." In re The New Power Co., 438 F.3d 1113, 1118 (11th Cir. 2006) (quoting 11 U.S.C. § 1125(a)(2)(C)).

"Numerous courts have prescribed a list of disclosures which typically should be included in a disclosure statement." In re Cardinal Congregate I, 121 B.R. 760, 765 (Bankr. S.D. Ohio 1990) (citing In re Dakota Rail, Inc., 104 B.R. 138 (Bankr. D. Minn. 1989); In re Scioto Valley Mortg. Co., 88 B.R. 168 (Bankr. S.D. Ohio 1988); In re S.E.T. Income Props., III, 83 B.R. 791 (Bankr. N.D. Okla. 1988); In re Jeppson, 66 B.R. 269 (Bankr. D. Utah 1986); In re Metrocraft Publ'g Servs., Inc., 39 B.R. 567 (Bankr. N.D. Ga. 1984); In re Malek, 35 B.R. 443 (Bankr. E.D. Mich. 1983)). These cases and others have developed a list of factors courts should consider when determining whether the disclosure statement meets the statutory requirement of adequate information. These factors are:

(1) The events which led to the filing of a bankruptcy petition; (2) a description of the available assets and their value; (3) the anticipated future of the company; (4) the source of information stated in the disclosure statement; (5) a disclaimer; (6) the present condition of the debtor while in Chapter 11; (7) the scheduled claims; (8) the estimated return to creditors under a Chapter 7 liquidation; (9) the accounting method utilized to produce financial information and the name of the accountants responsible for such information; (10) the future management of the debtor; (11) the Chapter 11 plan or a summary thereof; (12) the estimated administrative expenses, including attorneys' and accountants' fees; (13) the collectability of accounts receivable; (14) financial information, data, valuations or projections relevant to the creditors' decision to accept or reject the Chapter 11 plan; (15) information relevant to the risks posed to creditors under the plan; (16) the actual or projected realizable value from recovery of preferential or otherwise voidable transfers; (17) litigation likely to arise in a nonbankruptcy context; (18) tax attributes of the debtor; and (19) the relationship of the debtor with the affiliates.

Cardinal Congregate I, 121 B.R. at 765; see also In re United States Brass Corp., 194 B.R. 420, 424-25 (Bankr. E.D. Tex. 1996) (citing In re Metrocraft, 39 B.R. at 568). Disclosure of all factors, however, is not necessary in every case. Id. Cases have specified that these factors are only a general "yardstick" and need to be modified as the circumstances and size of each case warrant. Cardinal Congregate I, 121 B.R. at 765; see also In re Keisler, No. 08-34321, 2009 WL 1851413, *4 (Bankr. E.D. Tenn. June 29, 2009). It is "well understood that certain categories of information which may be necessary in one case may be omitted in another; no one list of categories will apply in every case." In re Phoenix Petroleum, 278 B.R. 385, 393 (Bankr. E.D. Pa. 2001).

The legislative history of 11 U.S.C. § 1125(a)(1), provides for this case-specific approach:

Both the kind and form of information are left essentially to the judicial discretion of the court, guided by the specification in subparagraph (a)(1) that it be of a kind and in sufficient detail that a reasonable and typical investor can make an informed judgment about the plan. The information required will necessarily be governed by the circumstances of the case.

In re River Villages Assoc., 181 B.R. 795, 804 (Bankr. E.D. Pa. 1995) (citing S. Rep. No. 95-989, at 121 (1978), reprinted in 1978 U.S.C.A.N. 5787, 5907). "The determination of what is adequate information is subjective and made on a case by case basis. This determination is largely within the discretion of the bankruptcy court." Phoenix Petroleum, 278 B.R. at 393 (quoting Matter of Texas Extrusion Corp., 844 F.2d 1142, 1157 (5th Cir. 1988)); see Kirk v. Texaco, Inc., 82 B.R. 678, 682 (Bankr. S.D.N.Y. 1988). The legislative history continues:

Precisely what constitutes adequate information in any particular instance will develop on a case-by-case basis. Courts will take a practical approach as to what is necessary under the circumstances of each case, such as the cost of preparation of the statements, the need for relative speed in solicitation and confirmation, and, of course, the need for investor protection.

Phoenix Petroleum, 278 B.R. at 393 (quoting H.R. Rep. No. 595 at 408-09 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6365).

In general terms, "the adequacy of disclosure is dependent upon various factors including: the size and complexity of the chapter 11 case, the type of plan proposed, the type of creditors and claims impaired by the proposed plan, and the access by impaired creditors to relevant information from other sources." Id. (quoting In re Monroe Well Serv., Inc., 80 B.R. at 324, 330 (Bankr. E.D. Pa. 1987)). See also 5 Lawrence P. King, Collier on Bankruptcy § 1125.03[1], 1125-22 (courts should 'consider the needs of the claims or interest of the class as a whole and not the needs of the most sophisticated or least sophisticated members of a particular class"). Thus, "[t]here will be a balancing of interest in each case. In reorganization cases, there is frequently great uncertainty. Therefore the need for flexibility is greatest." In re Bermuda Bay, LLC & ABKDH, LLC, No 09-32133, 2009 WL 5218071, *4 (Bankr. E.D. Va. Dec. 31, 2009) (quoting H.R. Rep. No. 95-595 at 409).

The standard for disclosure is, thus, flexible, and what constitutes "adequate...