In re Millburn Peat Co., Inc.
| Decision Date | 15 February 2008 |
| Docket Number | No. 1:07 CV 42 PS.,No. 1:07 CV 41 PS.,1:07 CV 41 PS.,1:07 CV 42 PS. |
| Citation | 384 B.R. 510 |
| Parties | In re MILLBURN PEAT COMPANY, INC., and Green Thumb of Indiana, L.L.C., Debtors. PVP Industries, Inc., Appellant, v. Millburn Peat Company, Inc., Appellee. PVP Industries, Inc., Appellant, v. Green Thumb of Indiana, L.L.C., Appellee. |
| Court | U.S. District Court — Northern District of Indiana |
Daniel J. Skekloff, Scot T. Skekloff, Skekloff Adelsperger & Kleven LLP, Fort Wayne, IN, for Debtor.
On November 17, 2006, Bankruptcy Judge Robert Grant confirmed the proposed Chapter 11 plans of Debtors Millburn Peat Company ("Millburn") and Green Thumb of Indiana, L.L.G. ("GT Indiana")1 over the objection of P.V.P. Industries, Inc., one of Debtors' unsecured creditors. P.V.P. claimed that the plans were not fair and equitable as required by 11 U.S.C. § 1129, because they allowed 1 st Source Bank, Debtor's largest creditor, to be paid more than the value of its secured claim. The court relied on a stipulation between Debtors and P.V.P. that "the Bank has a first priority security interest or mortgage on all of the property of each of the Affiliated Entities" in concluding that the Bank was not overpaid on its secured claims. On appeal, P.V.P. argues that the court's interpretation of the stipulation was erroneous. I agree with Judge Grant's ruling, and therefore the opinion of the bankruptcy court is affirmed.
On February 4, 2005, 1st Source Bank commenced a receivership action against Millburn, GT Indiana, Green Thumb of Georgia, LLC ("GT Georgia") and Klumb Company (collectively, the "Affiliated Entities"). (DE 11-4 at 1.)2 At that time, all four entities were owned by Sam Pitulla. (Id.) 1st Source was Debtors' pre-petition lender and their largest creditor. (DE 11-6 at 3.) During the receivership, Pitulla transferred the stock ownership interests of each of the Affiliated Entities to Country Stone and Soil of Indiana, Inc; (DE 11-4 at 1.) In August 2005, the Affiliated Entities filed Chapter 11 petitions. (Id.) Debtors' disclosure statements indicate that 1st Source Bank filed a Proof of Claim totaling $5,903,669.20. (Id. at 2.)
On August 30, 2005, the Court granted Debtors' request for the use of cash collateral to facilitate ongoing business operations. (DE 11-8.) The Court's order provided that, "[a]s adequate protection for the use of cash collateral, 1st Source Bank and all other secured creditors with an interest in cash collateral shall have a replacement lien on the Debtor's post-petition assets which comprised the pre-petition cash collateral in the same priority and to the same extent as existed prepetition." (Id. at 2.) At trial, Ronald Bjustrom, the owner of Country Stone and Soil, the Debtors' holding company, testified that Debtors had sought the use of $100,000 of accounts receivables to operate with (Tr. at 32), although the cash collateral order does not specifically reference that amount.
Debtors filed their Chapter 11 plans of reorganization on April 21, 2006. (DE 2-2 at 19.) The plans provided for the cancellation of Class 1A claims, administrative loans that Country Stone and Soil had made to Debtors to allow them to continue to operate, in exchange for Country Stone and Soil's retention of the equity in the two businesses. (DE 11-5 at 5; l:07cv42, DE 13-5 at 5-6.) The amount of the administrative loan to Millburn'. was approximately $612,000; the loan to Green Thumb was approximately $270,000. (DE 13-9 at 17.) The Millburn plan proposed to repay 1st Source Bank $2,251,000. via two promissory notes — a $500,000 note secured by Millburn's real estate, and a $1,751,000 note secured by all of its other assets. (DE 11-5 at 6.) The GT Indiana plan proposed to repay the Bank $1,402,000, also in two promissory notes — a $500,000 note secured by GT Indiana's real estate and a $902,000 note secured by all other assets. Thus, together, Millburn and GT Indiana would pay a total of $3,653,000 to 1st Source.3
After all of the other allowed secured claims and tax claims were counted, the plans provided for a total of only $20,000 to be paid to unsecured creditors. (DE 11-5 at 7; l:07cv42, DE 13-5 at 6-7.) The classes of unsecured creditors (Class 8 in the Millburn case, Class 5 in the GT Indiana case) voted to reject the plans.
On September 8, 2006, Debtors moved to confirm the plans over the rejection of the class of unsecured creditors. (DE 239; l:07cv42, DE 162.) On November 15, 2006, Judge Grant held a trial on Debtors' motion to confirm. P.V.P. was the only rejecting creditor that chose to participate in the confirmation trial. Two days prior to trial, Debtors and P.V.P. filed stipulations of fact. (DE 11-4.) Stipulation No. 9 in both cases read as follows:
As set forth in the Affiliated Entities' Disclosure Statements, (i) the Affiliated Entities were jointly indebted to the Bank in the amount, as of the date of filing, of $5,903,669.20, and (ii) with minimal exceptions, the Bank has a first priority security interest or mortgage on all of the property of each of the Affiliated Entities.
(Id. at 2.)
At trial, P.V.P. argued that the Bank was not entitled to all of the Debtors' postpetition assets. Its theory was that 1st Source was undersecured, and therefore, it was not fair and equitable to treat 1st Source as a fully secured creditor having a lien against all the Debtors' assets, when its loans exceeded the pre-petition collateral. However, P.V.P. was in a bind because the Stipulation No. 9 stated that the Bank "has" a first priority security interest in all the Debtors' assets.
First, P.V.P. moved for relief from the stipulation, asking that it be read to state that the Bank "had" a first priority security interest or mortgage on all property at the time the Debtors filed their petitions, not that the Bank "has" such an interest on all post-petition assets. (Tr. at 65.) According to P.V.P., the inclusion of the word "has" was a "typographical error." (Id.) P.V.P. further argued that even if the stipulation was read to give the Bank a security interest on all post-petition assets, the stipulation failed to identify the value of the Bank's mortgage on those assets. (Id. at 37-38.) P.V.P. also asserted that the plans overvalued the Bank's lien by including post-petition inventory and accounts receivables, when the cash collateral order only granted a replacement lien up to $100,000 for use of cash collateral. (Id. at 39-40; 66-67.)
The bankruptcy court determined that there was no basis to relieve P.V.P. from the stipulation giving the Bank a lien on all post-petition assets. (Tr. 119-121.) The court noted that the plans were derived out of a negotiation process — one that P.V.P. did not participate in. (Id. at 122-25.) It held that the plans did not discriminate unfairly against the unsecured creditors because the Bank, having a lien on all of the Debtors' assets, was entitled to be treated differently from the unsecured creditors. (Id. at 127-130.) It further concluded that the plans were fair and equitable because no junior class of creditors received any property other than Debtors' shareholders, whose retention of equity stakes in the companies satisfied the "new value" exception to the "absolute priority" rule. (Id. at 132-39.)
P.V.P. moved to alter or amend the order confirming the plans, arguing that the court misinterpreted Stipulation No. 9 by reading it without reference to the Debtors' disclosure statements. The disclosure statements reference the Debtors' pre-petition liens on all assets as well as the post-petition lien on cash collateral. P.V.P. asserted that once the stipulation was read in context with the disclosure statement and the cash collateral order, it was clear that the Bank's lien on postpetition assets was limited to $100,000. (DE 4-7.) The bankruptcy court denied the motion on the grounds that P.V.P. had waived this argument by failing to raise it at the confirmation hearing. (DE 4-4 at 2.) The court also found no merit in P.V.P.'s argument that the Bank was receiving more than the full payment of its claim. (Id. at 3.)
P.V.P. then filed this appeal. The Debtors moved to dismiss the appeal on grounds that substantial consummation of the plans rendered the appeal moot.
Debtor-Appellees moved to dismiss the appeal on the grounds that the plans have been substantially consummated in the intervening months between confirmation and this appeal, and therefore, the appeal ought to be deemed moot. [DE 14.] Debtors are not, of course, arguing that the appeal is actually moot, but that equitable principles of bankruptcy counsel against disturbing the partially implemented plan. Matter of UNR Indus., Inc., 20 F.3d 766, 769 (7th Cir.1994) ().
The Seventh Circuit has outlined factors to be considered when determining whether a bankruptcy plan ought to be upset on appeal, including the virtue of finality, the passage of time, whether the plan has been substantially consummated, and whether there has been a comprehensive change in circumstances. In re Specialty Equip. Cos., Inc., 3 F.3d 1043, 1048 (7th Cir.1993). A court should also consider additional elements such as whether the appellants have sought a stay, the nature of the relief sought, and the impact of the relief upon the debtor and third parties. Id.
Appellees criticize P.V.P.'s failure to move for a stay pending resolution of this appeal. However, while requesting a stay is one of the factors in the mootness consideration, it is not a prerequisite for modification of a reorganization plan. In re UNR, 20 F.3d at 769. Debtors' plans were confirmed on November 17, 2006, little more than a year ago. Debtors have made certain payments to creditors other than 1st...
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...of their plans).179. See In re One2One, 805 F.3d at 434-35 (3d Cir. 2015); PVP Indus. v. Millburn Peat Co. (In re Millburn Peat Co.), 384 B.R. 510, 514 (N.D. Ind. 2008); In re Club Assocs., 956 F.2d 1065, 1066-67 (11th Cir. 1992). 180. Comm'n to Study the Reform of Chapter 11, Am. Bankr. In......