In re Kroh Bros. Development Co.
| Decision Date | 31 July 1989 |
| Docket Number | Adv. No. 89-4035-1-11.,87-01265-1-11,Bankruptcy No. 87-00640-1-11,87-01930-1-11 and 87-01266-1-11,87-00641-1-11,87-01263-1-11 |
| Citation | 100 BR 487 |
| Parties | In re KROH BROTHERS DEVELOPMENT COMPANY, a Missouri Corporation, Debtor. In re KROH BROTHERS EQUITY COMPANY, a Missouri Corporation, Debtor. In re KROH BROTHERS REALTY COMPANY, a Missouri Corporation, Debtor. In re KROH INVESTMENTS I, INC., a Missouri Corporation, Debtor. In re KROH TELECOMMUNITIES, INC., a Missouri Corporation, Debtor. In re WARD PARKWAY CORP., a Missouri Corporation, Debtor. KROH BROTHERS DEVELOPMENT COMPANY and The Kroh Operating Limited Partnership, By I.I. Ozar, Managing Agent and Estate Administrator, Plaintiffs, v. UNITED MISSOURI BANK OF KANSAS CITY, N.A., Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Cory Lipoff, Nachman, Munitz, Sweig, Ltd., Chicago, Ill., for debtors.
R. Pete Smith, McDowell, Rice & Smith, Kansas City, Kan., for Ozar.
Edward E. Schmitt, Dietrich, Davis, Dicus, Rowlands, Schmitt & Gorman, Kansas City, Mo., for Segregated Fund trustee.
Thomas S. Kiriakos, Mayer, Brown & Platt, Chicago, Ill., for Creditors Committee.
Mendel Small, Scott Goldstein, Spencer, Fane, Britt & Browne, Thomas M. Deacy, Gary Cupples, Deacy & Deacy, Kansas City, Mo., for United Missouri Bank of Kansas City.
Debtors and I.I. Ozar (collectively, plaintiffs) sued defendant United Missouri Bank of Kansas City, N.A. seeking to avoid various allegedly preferential transfers. In addition to this proceeding, Debtors and either Ozar or the Segregated Fund Trustee, Edward E. Schmitt1 filed approximately 88 other adversary proceedings seeking recovery of either preferential transfers or fraudulent conveyances. Pending before the Court is defendant's Motion to Dismiss for Lack of Standing.2 In its Motion and Suggestions in Support defendant argues that plaintiffs lack standing to bring this adversary proceeding and the complaint should be dismissed. Defendant bases its argument on the premise that the avoiding powers have been improperly assigned or transferred to plaintiffs because only a trustee or debtor in possession have authority to use those powers. Other defendants in similar adversary proceedings (Adversary Proceedings) also filed Motions to Dismiss asserting plaintiffs' lack of standing.
Plaintiffs' responsive briefs were timely filed. The Creditors' Committee Panel created pursuant to the Plan3 filed its Memorandum pursuant to 11 U.S.C. § 1109(b) in opposition to the Motion. Decretal Paragraph 24 of the Confirmation Order4 provides that the bankruptcy court shall retain jurisdiction over the Debtors' Chapter 11 cases in accordance with Article 13 of the Plan.5
An evidentiary hearing was held on April 19, 1989. At the hearing plaintiffs produced testimony from three witnesses: Greg Galvin, Jim Harpool and Patrick Healy.
Galvin worked for Kroh Brothers Development Company (KBDC) prepetition from September, 1986 until the date of the bankruptcy filings on February 13, 1987. During that period he had accounting and cash management responsibilities. On the date of filing he was the assistant controller but soon thereafter became the controller. During the bankruptcy proceedings, he supervised the assembly of monthly operating reports filed with this Court, had supervision and control of cash management and made cash projections of the Kroh Related Entities.6 Since confirmation of the Plan, Galvin has been employed by the Kroh Operating Limited Partnership created by the Plan7 and is its Chief Operating Officer. In that capacity, he serves as the primary KOLP contact for attorneys and is responsible for cash management, cash projections, and tax filings. He meets on a regular basis with the Ozar Partnership and has participated in every meeting involving either the analysis of a potential claim against a creditor or settlement negotiations with the creditor prior to filing suit.
Jim Harpool also worked for KBDC prior to the bankruptcy. At the time of filing, he worked with KBDC's development and construction activities. He is currently employed by KOLP and is in charge of day-to-day operations of the KOLP properties.
Patrick Healy represents creditor Equity Analysts. Prior to bankruptcy he had business dealings with KBDC. During bankruptcy, he presided over the Creditors' Committee and was involved with pre-confirmation negotiations with Ozar. He is currently on the Creditors' Committee Panel (Panel).
The Court found the testimony of all witnesses highly credible.
From February 13, 1987 through May 1, 1987 KBDC and its five affiliated corporations (Debtor plaintiffs herein) as well as more than thirty related partnerships (collectively the Kroh Related Entities) filed voluntary petitions under Chapter 11. Due to the magnitude of the bankruptcy proceedings and the dispositive nature of the standing issue, a review of the history of Debtors and these proceedings is necessary.
Unless otherwise noted, the following discussion of facts is taken from the Disclosure Statement8 and plaintiffs' undisputed statements of fact. The Debtors were in the real estate development business prior to commencement of these bankruptcy cases. They had substantial commercial real estate holdings and acquired property with a view towards syndicating interests in partnerships that would eventually own such property. For various reasons the Debtors' business operations disintegrated. Beginning in mid-November, 1986, numerous transfers were made by the Debtors of their real property interests and their partnership interests (including 55 partnership interests belonging to KBDC) to various lenders, limited partners in the partnerships, and other third persons. By the end of January, 1987, it became clear that Debtors would not be able to reach a consensual arrangement with its creditors.
Debtors operated as debtors in possession during the pendency of these cases. An Official Unsecured Creditors' Committee (Creditors' Committee) was also appointed in the then-pending Kroh Related Entities' bankruptcies pursuant to the Court's Order entered on March 5, 1987. Healy testified that it soon became clear Debtors could not reorganize. Both Galvin's and Healy's testimony indicated that the number of real estate interests and debts encompassed by the bankruptcy filings required the assistance of a third party with substantial financial capability and familiarity with both local and national real estate markets to formulate and implement a plan of reorganization with the greatest potential return to creditors. Accordingly, both Debtors and the Creditors' Committee actively solicited more than 100 third parties to assist them in formulating a plan or plans of reorganization.
As a result of these solicitations Debtors entered into preliminary negotiations with a number of nationally known real estate developers. After much consideration Debtors reached an agreement with I.I. Ozar to work toward the formulation of a plan. This acceptance took the form of the execution of a letter agreement that was subject to bankruptcy court approval. Ozar and his two partners Frank Morgan and Sherman Dreiseszun are well known in Missouri and elsewhere as real estate developers with extensive holdings and as bankers.
This Court entered its Order and Judgment approving an agreement with Ozar or his assigns on September 9, 1987.9 The Court concluded in its Order that the assistance of a third party with substantial financial capability was required to formulate a plan of reorganization in these cases. The Court further concluded that Ozar was familiar with the local and national real estate markets, had extensive experience in real estate financing and was well suited to assist Debtors and their affiliated partnerships in these cases. Ozar, Frank Morgan and Sherman W. Dreiseszun formed the partnership in October, 1987 that eventually became known as the Ozar Limited Partnership for the purpose of jointly proposing a plan with the Debtors. Galvin testified the Plan was the result of substantial negotiations by and among Debtors, the Ozar Partnership and the Creditors' Committee.
Debtors and the Ozar Partnership filed their original joint plan of reorganization on October 8, 1987. The final version, which became the Plan after approval of the disclosure statement and confirmation proceedings, was filed February 11, 1988. The original disclosure statement was filed on October 22, 1987. Two subsequent versions of the disclosure statement were filed. Each disclosure statement was properly noticed and heard and the Disclosure Statement was approved by this Court's Order entered January 14, 1987.
The Plan contemplated the formation of the Kroh Operating Limited Partnership (KOLP) to be comprised of Debtors and the Ozar Partnership. Both Debtors and the Ozar Partnership were to have a 50% interest in KOLP. The Plan then divided the estate's assets into four categories: Cash, Causes of Action, Designated Trust Assets and Remaining Assets. The Debtors would transfer the Causes of Action and the Remaining Assets to KOLP in return for a 50% partnership interest in KOLP. In consideration for its partnership interest, the Ozar Partnership would contribute capital and obligate itself to loan funds and perform tasks as necessary to accomplish the operation of the business of KOLP as set forth in the Plan.
The Plan also created a Segregated Fund for the purpose of administering payments of allowed claims in accordance with the terms of the Plan. A Segregated Fund Trustee with powers equivalent to a trustee under the Bankruptcy Code would be appointed. The Segregated Fund would...
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