In re Hotel Associates of Tucson
| Decision Date | 31 March 1994 |
| Docket Number | BAP No. AZ-92-2282-MeRV. Bankruptcy No. 92-0620-TUC-LO. |
| Citation | 165 BR 470 |
| Parties | In re HOTEL ASSOCIATES OF TUCSON, Debtor. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Appellant, v. HOTEL ASSOCIATES OF TUCSON, et al., Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Scott D. Gibson, Tucson, AZ, for Connecticut General Life Ins.
John R. Clemency, Phoenix, AZ, for Hotel Associates of Tucson.
Before: MEYERS, RUSSELL and VOLINN, Bankruptcy Judges.
I
Connecticut General Life Insurance Company ("Connecticut General") appeals from the orders confirming the First Amended Plan of Reorganization submitted by the Paragon Group (the "Paragon Plan") and denying confirmation of the competing Plan of Reorganization filed by C.R.H.C. of Tucson, Inc. (the "CRHC Plan").
II
Hotel Associates of Tucson ("the Debtor") filed a voluntary Chapter 11 petition on February 28, 1992. The Debtor is an Arizona limited partnership whose sole asset is a 204-room hotel (the "Hotel") in Tucson, Arizona. The general partners of the Debtor are Lawrence Smira, Robert Ewing, Gary Wieser, Saliterman/Goldstein Investments (collectively, the "Paragon Group"), the Paragon Hotel Corporation and C.R.H.C. of Tucson, Inc. ("CRHC"). As a result of an objection to the petition and motion to dismiss filed by CRHC, an Amended Petition Commencing Involuntary Case Against Partnership was filed on April 1, 1992. An order for relief was entered on June 30, 1992.
Connecticut General is the Debtor's largest and only non-governmental secured creditor. It holds a secured lien against the Hotel in the sum of $8,597,300 as of the petition date. Connecticut General's claim is evidenced, inter alia, by a promissory note dated December 5, 1981, in the original sum of $7,500,000 and a deed of trust and security agreement executed on the same date. The note provides for monthly installments of principal and interest calculated at the rate of 14 percent per annum, together with additional interest equal to 20 percent of the "gross annual room revenues" of the Hotel in excess of $3,100,000. The note further provides for payment of interest at a specified default rate following a default by the Debtor.
The Debtor defaulted on its obligation to Connecticut General in the summer of 1991. Since that time the Debtor has not made any payments of principal or interest to Connecticut General.
Both the Paragon Group and CRHC filed plans of reorganization. The Paragon Plan contains eight classes of claims and interests. It purports to capitalize all outstanding principal and non-default rate interest on Connecticut General's claim as of the effective date of the Paragon Plan and to pay such claim over a seven-year period, with interest at the prime rate plus 1½ percent, based on a 25 year amortization schedule. It is undisputed that Connecticut General's claim is impaired under the Paragon Plan. Connecticut General voted to reject the Paragon Plan.
The Paragon Plan pays all other creditors in full. It pays all of the Class 6 general unsecured claims in cash, but delays payment for a period of 30 days, with interest paid on such claims at the prime rate.
The CRHC Plan also impairs Connecticut General's claim and proposes to pay all other creditors in full. It proposes to repay the Connecticut General loan at a base interest rate of 10 percent and offers Connecticut General a 40 percent participation in net cash flow and in the net proceeds of any sale or refinancing of the Hotel. The CRHC Plan proposes to remove the Paragon Group as the managing general partner of the Debtor, to install an affiliate of CRHC to operate the Hotel and to reduce the Paragon Group's aggregate ownership share in the Debtor from 45 percent to 22.5 percent. Connecticut General voted to accept the CRHC Plan.
Both plans propose to utilize all available cash of the estate as of the effective date. The Paragon Plan proposes to pay all creditors other than Connecticut General, implement a capital improvement plan and distribute all of the excess cash to the Debtor's general and limited partners. The CRHC Plan proposes to use the cash to pay all creditors, implement a capital improvement plan and reinstate the claim of Connecticut General.
On November 13, 1992, the bankruptcy court entered an order confirming the Paragon Plan and denying confirmation of the CRHC Plan. Connecticut General filed a notice of appeal and a motion for stay pending appeal. The bankruptcy court denied Connecticut General's motion for stay pending appeal. Connecticut General then sought a stay pending appeal from the Bankruptcy Appellate Panel. On December 27, 1992, the bankruptcy court entered an Amended Order Confirming the Paragon Plan. In response, Connecticut General filed an amended notice of appeal. On December 30, 1992, the BAP issued a temporary stay of the confirmation order, which was subsequently extended pending final disposition of this appeal.
III
Whether a plan impairs a creditor's interest is a question of law subject to de novo review. In re L & J Anaheim Associates, 995 F.2d 940, 942 (9th Cir.1993); In re Acequia, Inc., 787 F.2d 1352, 1357 (9th Cir. 1986).
The finding of good faith will not be overturned unless the opponent of the Chapter 11 plan can show that the finding was clearly erroneous. In re Jorgensen, 66 B.R. 104, 109 (9th Cir. BAP 1986); In re Stolrow's Inc., 84 B.R. 167, 172 (9th Cir. BAP 1988). Likewise, the issue of whether a reorganization plan is fair and equitable involves questions of fact and will not be set aside unless clearly erroneous. Great Western Bank v. Sierra Woods Group, 953 F.2d 1174, 1176 (9th Cir.1992); Debentureholders, etc. v. Continental Inv. Corp., 679 F.2d 264, 269 (1st Cir.1982) (Act case).
A bankruptcy court should be accorded substantial deference in making cramdown interest rate determinations. In re Fowler, 903 F.2d 694, 696 (9th Cir.1990). The determination of what factors to apply in a valuation calculation is an interpretation of a statute which is reviewed de novo. However, the application of these factors to a certain case is a question of fact which is reviewed under a clearly erroneous standard. In re Patterson, 86 B.R. 226, 227 (9th Cir. BAP 1988).
IV
The Debtor contends that this appeal should be dismissed as moot. By the time Connecticut General obtained a stay of the plan confirmation order, payments in full were made to creditors in Classes 1, 3, 5 and 6. A total of $24,665.95 was paid to four Class 1 administrative claimants, $139,550.80 was paid to five Class 3 tax claimants, $3,730.99 was paid to 49 Class 5 administrative convenience claimants and $155,942.24 was paid to 56 Class 6 general unsecured creditors. Payments on the Class 4 claim to Connecticut General were tendered but refused.
To dismiss this appeal on the basis of mootness, the Panel must find that the plan has been so substantially consummated that effective judicial relief is no longer available to the appellant. Matter of Sun Country Development, Inc., 764 F.2d 406, 407 n. 1 (5th Cir.1985). Substantial consummation of a plan of reorganization turns on the facts of each case. In re Jorgensen, supra, 66 B.R. at 106. The word "substantial" suggests more than halfway, more than a mere preponderance. 66 B.R. at 107.
We will not dismiss this appeal as moot. The Paragon Plan has not been so substantially consummated that effective judicial relief is no longer available to the appellant. Although four of the eight classes have been paid, the Debtor has not paid Connecticut General's claim which exceeds $8 million. It is clear, these four classes would be paid under either plan. Further, Connecticut General did everything it could to stay the plan confirmation order. When the bankruptcy court refused to grant a stay of the order, Connecticut General appealed to the BAP and received a stay. Thus, this case differs from the cases cited by the Debtor, In re Robert Farms, Inc., 652 F.2d 793, 795 (9th Cir.1981) and In re Clarke, 98 B.R. 979, 980 (9th Cir. BAP 1989), in which the courts cited the appellants' "procedural ineptitude" in failing to seek a stay of the plan confirmation orders.
On the merits, Connecticut General asserts that the Paragon Plan should not have been confirmed because no properly impaired class accepted it. Under Bankruptcy Code ("Code") Section 1129(a)(10), a plan cannot be confirmed unless at least one "impaired class" accepts the plan, excluding acceptance by any insider. In re Willows Convalescent Centers Ltd. Partnership, 151 B.R. 220, 222 (D.Minn.1991). Connecticut General contends that the only reason the Paragon Plan paid the Class 6 general unsecured creditors 30 days after the effective date was to create an artificially impaired class which would vote for the plan. Connecticut General maintains that the Debtor had sufficient cash on the effective date to pay Class 6 claims at that time. It cites several cases holding that an alteration intended only to create an impaired class to vote for a plan so that a debtor can effectuate a cramdown will not be allowed. In re Windsor on the River Associates, Ltd., 7 F.3d 127, 132 (8th Cir. 1993); Willows Convalescent Centers Ltd. Partnership, supra, 151 B.R. at 222; In re Club Associates, 107 B.R. 385, 401 (Bkrtcy. N.Ga.1989); In re Lettick Typografic, Inc., 103 B.R. 32, 39 (Bkrtcy.Conn.1989).
Although it appears that the 30-day wait was employed solely to create a slightly impaired class to vote on the plan, a recent Ninth Circuit Court of Appeals case found a similar action permissible. In L & J Anaheim Associates, supra, 995 F.2d at 943, a secured creditor's rights and remedies under the Uniform Commercial Code were abrogated by that...
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