In re Mid-State Raceway, Inc.

• Decision Date: 19 January 2006
• Docket Number: No. 04-65745.,No. 04-65746.,04-65746.,04-65745.
• Citation: 343 B.R. 21
• Parties: In re: MID-STATE RACEWAY, INC., Debtor In re: Mid-State Development Corporation, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of New York

343 B.R. 21

In re: MID-STATE RACEWAY, INC., Debtor In re: Mid-State Development Corporation, Debtor.

No. 04-65746.

No. 04-65745.

United States Bankruptcy Court, N.D. New York.

January 19, 2006.

Stroock & Stroock & Lavan LLP, New York, NY (Christopher Donoho, of Counsel), Hiscock & Barclay, LLP, Syracuse, NY (J. Eric Charlton, Esq., of Counsel), for Oneida Entertainment, LLC.

Harris Beach, LLP, Syracuse, NY (Lee E. Woodard, of Counsel), for Debtors.

McGuirewoods LLP, New York, NY (James P. Ricciardi, of Counsel), Pittsburgh, PA (Mark E. Freedlander, of Counsel), for Vernon Downs Acquisition, LLC.

Bond, Schoeneck & King, LLP, Syracuse, NY (Stephen A. Donato, of Counsel), for Official Committee of Unsecured Creditors.

Menter, Rudin & Trivelpiece, P.C., Syracuse, NY (Jeffrey A. Dove, of Counsel), for Vestin Mortgage, Inc.

E. Lisa Tang, Delmar, NY, for Dominick A. Giambona.

Costello, Cooney & Fearon, PLLC, Syracuse, NY (Anthony R. Hanley, of Counsel), for County of Oneida.

Green & Seifter, PLLC, Syracuse, NY (Steven A. Paquette, of Counsel), for Harness Horse Association of Central New York, Inc.

MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

STEPHEN D. GERLING, Chief Bankruptcy Judge.

The Court considers the motion filed on December 28, 2005, by Oneida Entertainment, LLC ("Oneida"), on shortened notice, seeking a determination pursuant to Rule 3019 of the Federal Rules of Bankruptcy Procedure ("Fed.R.Bankr.P.") that further disclosure and resolicitation of votes are not required with respect to its Modified First Amended Plan of Reorganization, filed by it on December 12, 2005, as well as its Second Modified First Amended Plan of Reorganization, filed on December 23, 2005, (hereinafter referred to jointly as the "Modified Oneida Plan"). Opposition to Oneida's motion was filed on behalf of Dominick A. Giambona ("Giambona") and John J. Signorelli ("Signorelli") on January 4, 2006. On January 5, 2006, opposition was also filed on behalf of Mid-State Raceway, Inc. ("Debtor" or "Raceway") and Mid-State Development Corporation (hereinafter jointly referred to as the "Debtors") and Vernon Downs Acquisition, LLC ("VDA"). Opposition was also filed on behalf of Vestin Mortgage, Inc. ("Vestin"), All Vernon Acquisition, LLC ("AVA") and All Capital, LLC ("AC") (hereinafter referred to jointly as "Vestin/AVA/AC") on January 5, 2006. In addition, the Official Committee of Unsecured Creditors (the "Committee") filed opposition on January 5, 2006.

The motion was heard on January 6, 2006, at a special term of the Court at Utica, New York. After hearing oral argument on the motion, the Court afforded the parties an opportunity to file memoranda of law. The matter was submitted for decision on January 13, 2006.

JURISDICTIONAL STATEMENT

The Court has core jurisdiction over the parties and subject matter of this contested matter pursuant to 28 U.S.C. §§ 1334, 157(a), (b)(1) and (b)(2)(A) and (L)

FACTS

Interested Parties

The Debtors filed voluntary petitions pursuant to chapter 11 of the Code on August 11, 2004.¹ On August 12, 2004, the Court signed an Order granting joint administration of the two cases. Raceway owns all of the stock of Mid-State Development. Raceway operated the Vernon Downs racetrack in Vernon, New York,² and Mid-State Development operates an adjacent hotel, food and proposed video gaming business. Raceway owns the real property on which the hotel is operated.

Jeffrey Gural ("Gural") is the managing member of VDA, which was organized by Gural and TrackPower, Inc. to facilitate the acquisition of the Debtors. On June 14, 2005, the Debtors, along with VDA, as co-proponents, filed their First Joint Plan of Reorganization, along with their disclosure statement.

Oneida is a creditor in the case based on its purchase of certain claims from various creditors of the Debtors. Oneida is a joint venture between an investment fund managed by Plainfield Asset Management LLC and Oneida Capital LLC. According to Oneida's disclosure statement, its partners have expertise in both the gaming and harness racing industries and have been successful in turning around and operating distressed businesses. See Oneida's Disclosure Statement, filed September 13, 2005, at 32. Oneida filed its original plan and disclosure statement with the Court on August 17, 2005.

Vestin is the primary secured creditor of both Debtors. Vestin has asserted that it holds an allowed claim of over $26 million secured by a first lien on all of the Debtors' real and personal property. Since the filing of the cases, the Debtors and Vestin have entered into a series of stipulations for the use of cash collateral, which have provided for rollover security interests to Vestin. The Vestin loan is guaranteed, at least in part, by Shawn Scott ("Scott").

AVA, an entity owned by Scott, is the alleged owner of 52% of the issued and outstanding shares of Raceway as a result of its purchase of the shares at a foreclosure sale sometime after September 2004 when Raceway Ventures, LLC, which at some point had purchased the shares from various Scott entities, allegedly defaulted on its obligations to those Scott entities. AC is alleged to be a secured creditor, as well as the holder of an unsecured claim in the approximate amount of $550,000. Both AVA and AC are owned by Scott.

Giambona is an unsecured creditor and shareholder of the Debtors. Signorelli also is a shareholder of the Debtors. The Official Committee of Unsecured Creditors ("CC") was appointed in the Debtors' case by the United States Trustee on October 27, 2004.

Background of the Case

On March 9, 2005, the Court issued a Memorandum of Law, Findings of Fact, Conclusions of Law and Order in which it denied the Debtors' application for an extension of the exclusivity period to solicit acceptances of their plan beyond April 4, 2005.³ As noted previously, on June 14, 2005, the Debtors and VDA filed their First Joint Plan of Reorganization, along with their Disclosure Statement. This was amended on August 3, 2005. In the interim, on July 14, 2005, a chapter 11 plan of reorganization was filed by AC, AVA, Raceway Ventures, LLC and Scott (the "AVA entities"). Their disclosure statement was filed on July 20, 2005. On August 16, 2005, the AVA entities filed their Second Amended Disclosure Statement and Plan. By Letter Decision and Order, dated August 22, 2005, the Court approved the disclosure statements of both the AVA entities and the VDA/Debtor entities.⁴ As noted above, Oneida filed its plan of reorganization and disclosure statement on August 17, 2005. On September 13, 2005, Oneida filed its First Amended Chapter 11 Plan, as well as its disclosure statement.⁵ On September 21, 2005, the Court signed an Order approving the disclosure statement accompanying the VDA/Debtors' Plan, as well as the disclosure statement accompanying the Oneida Plan. The September 21st Order also set October 31, 2005, as the deadline for the receipt of ballots by the Ballot Agent.

On November 18, 2005, the Executive Director of Financial Balloting Group, LLC, Jane Sullivan ("Sullivan"), filed an affidavit, sworn to November 9, 2005, certifying the tabulation of acceptances, rejections and preferences as, to both plans.⁶ On December 15, 2005, Sullivan filed an amended affidavit, sworn to on December 14, 2005. According to the latter, Classes 3, 4, 5A and 5B all accepted the VDA/Debtors' Plan. Classes 3, 4, 5A and 5B voted to reject the Oneida Plan. Of relevance to the decision herein is the fact that in Class 3, VIP Structures, Inc.("VIP"),⁷ which asserted a claim of $807,998.93 ("VIP Claim") at the time,⁸ based on a mechanic's lien, voted to accept the VDA/Debtors' Plan and voted to reject that of Oneida. The other two mechanic's lienors in Class 3, which held claims totaling $30,586.80, submitted ballots accepting both plans.

On November 23, 2005, Oneida filed a motion pursuant to § 1126(e) of the Bankruptcy Code, 11 U.S.C. §§ 101-1330 ("Code"), to disqualify the votes filed by VIP in favor of the VDA/Debtors' Plan and against the Oneida Plan on the basis of alleged bad faith on the part of VDA/Debtors in connection with the solicitation of VIP's vote. On December 22, 2005, the Court issued its § 1126(e) Decision, denying Oneida's motion. In its § 1126(e) Decision, the Court made reference to the fact that counsel for Oneida had suggested at the hearing on its motion that "if it had known of the transfer of the VIP claim, it would have structured its plan differently to separately classify each of the holders of mechanic's liens [in Class 3]. Arguably, such a strategy may still be available to Oneida although the Court takes no position on the appropriateness of such a strategy at this time." § 1126(e) Decision at 14, n. 12.

On December 16, 2005, the Court commenced a confirmation hearing on the VDA/Debtors' Plan. The hearing was continued to December 28, 2005, for further testimony. The Court allowed the parties an opportunity to file a stipulation of uncontested facts⁹ and memoranda of law in support of their respective positions in lieu of closing arguments. The confirmation of VDA/Debtors' Plan was submitted for decision on January 13, 2006.

On December 12, 2005, four days prior to the initial day of testimony on the confirmation of the VDA/Debtors' Plan, Oneida filed its Modified First Amended Plan of Reorganization, in which Oneida proposed, inter alia, to pay the unsecured creditors in Class 5A and 5B interest on their claims. On December 23, 2005, the day after the Court issued its § 1126(e) Decision and five days before the adjourned confirmation hearing, Oneida filed its Second Modified First Amended Plan of Reorganization in which it proposed to split Class 3 into three separate classes, Class 3A, consisting of VIP, which previously rejected Oneida's Plan, Class 3B and Class 3C, comprised of creditors that previously accepted both plans but expressed a preference for the...