In re Mundy Ranch, Inc.

• Decision Date: 10 December 2012
• Docket Number: No. 12–13015–j11.,12–13015–j11.
• Citation: 484 B.R. 416
• Parties: In re MUNDY RANCH, INC., Debtor.
• Court: U.S. Bankruptcy Court — District of New Mexico

484 B.R. 416

In re MUNDY RANCH, INC., Debtor.

No. 12–13015–j11.

United States Bankruptcy Court, D. New Mexico.

Dec. 10, 2012.

Christopher M. Gatton, Denise J. Trujillo, George D. Giddens, Jr., Law Office of George Dave Giddens, PC, Albuquerque, NM, for Debtor.

Leonard K. Martinez–Metzgar, Albuquerque, NM, for U.S. Trustee.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, Bankruptcy Judge.

THIS MATTER is before the Court on the Debtor's Motion to Approve Sale of Real Property Free and Clear of Liens to Ray and Colleen Milligan Pursuant to 11 U.S.C. §§ 363 (the “Motion”) (Docket No. 31), filed by and through its attorneys of record, Law Office of George “Dave” Giddens, P.C. (Christopher Gatton). Debtor Mundy Ranch, Inc. (“Mundy Ranch”) filed a supporting brief (Docket No. 42). Father Robert Mundy (“Father Mundy”) filed an objection (Docket No. 36) and a brief (Docket No. 43). The Court held a final evidentiary hearing on the Motion on November 27, 2012 and took the matter under advisement.

Mundy Ranch seeks approval of the sale of 32.25 acres of vacant real property free and clear of any claims, liens, or other interests pursuant to 11 U.S.C. § 363(f). Father Mundy contends that the property cannot be sold free and clear of his claim to the property because it is not an interest subject to 11 U.S.C. § 363(f). Alternatively, Father Mundy asserts that if he does have an interest in the property within the meaning of 11 U.S.C. § 363(f), the Court should sequester all or a portion of the sale proceeds pending plan confirmation. After consideration of the Motion in light of the applicable sections of the United States Bankruptcy Code, 11 U.S.C. § 101 et al. (“Bankruptcy Code”) and relevant case law, and being otherwise sufficiently informed, the Court concludes that Mundy Ranch will be permitted to sell the property in question free and clear of any interests, including the interest of Father Mundy. Father Mundy's interest is already adequately protected by the restrictions on Mundy Ranch's operations as a Chapter 11 debtor in possession and other protections the Bankruptcy Code affords Father Mundy. The Court will not require that any sale proceeds be sequestered. The Court will, therefore, grant the Motion.

FINDINGS OF FACT

Mundy Ranch is a family-owned corporation organized under the laws of the State of New Mexico with its principal place of business in Rio Arriba County, New Mexico. Mundy Ranch sells undeveloped parcels of real property in northern New Mexico which together occupy approximately 6,000 acres of land. The majority of the land consists of an undivided 5,500 acre parcel, which is also called Mundy Ranch (the “Mundy Ranch Parcel”). Mundy Ranch scheduled the Mundy Ranch Parcel as having a value of $17,000,000, with secured claims against the Mundy Ranch Parcel in the amount of $2,095,000. See Mundy Ranch's Exhibit G. Mundy Ranch generates substantially all of its revenue from developing and selling parcels of land. It generates a small amount of revenue by selling Christmas trees. Father Mundy is a shareholder of Mundy Ranch who owns, either directly or indirectly, approximately 25% of the outstanding stock of the corporation. His father, James Mundy, is the controlling shareholder of Mundy Ranch, owning, either directly or indirectly, approximately 40% of the outstanding Mundy Ranch stock.¹

At some point Father Mundy became dissatisfied with the way James Mundy was managing Mundy Ranch. On March 9, 2012, Father Mundy filed a complaint in the First Judicial District Court of New Mexico (the “State Court”), styled Robert L. Mundy v. James W. Mundy, Mundy Ranch Incorporated, Mundy Family Revocable Trust, Mundy Ranch Limited Partnership, and J & S Mundy Family Limited Partnership, Case No. D–117–CV–2012–00098 (the “State Action”), seeking dissolution of Mundy Ranch and a partition of all its property (the “Partition Claim”). See Father Mundy's Exhibit 1. Father Mundy alleges that he is entitled to dissolution and partition because, among other things, James Mundy, who controls Mundy Ranch, has dissipated, misapplied and/or wasted its assets. Exhibit 1, State Court Complaint, ¶ 41. The claim for dissolution and the Partition Claim are in bona fide dispute. On March 15, 2012, Father Mundy filed a notice of l is pendens (the “Lis Pendens”) in the Office of the County Clerk of Rio Arriba County to notify any prospective purchasers or encumbrancers of the existence of the Partition Claim. See Father Mundy's Exhibit B.

On August 10, 2012, Mundy Ranch filed a voluntary petition under Chapter 11 of the Bankruptcy Code. As part of its reorganization efforts, Mundy Ranch is attempting to sell all or a substantial portion of its land. To this end, Mundy Ranch negotiated a purchase agreement with Ray Milligan and Colleen Milligan (together, the “Buyers”) to sell 32.25 acres (or roughly 20%) of a vacant parcel of land known as the Simms Property (the portions of the Simms Property under contract with the Buyers is referred to below as the “Simms Parcel”). See Mundy Ranch's Exhibit E. The purchase agreement provides that the Buyers will pay Mundy Ranch a total sum of $145,125.00, payable as follows: (1) $36,281.25 as a cash down payment; and (2) three annual payments of $36,281.25. See Mundy Ranch's Exhibit D. Mundy Ranch intends to use the net sale proceeds to pay its operating expenses, which range from $35,000 to $40,000 per month. David Mettler, Mundy Ranch's vice president, testified that these expenses include, among other things: (1) employees' salaries; (2) maintenance fees; (3) legal fees; (4) utilities; and (4) insurance.

The Buyers, who live in northern New Mexico, own land that shares a common boundary with the Simms Parcel. The Buyers are not insiders of Mundy Ranch. The purchase agreement was negotiated at arm's length. In addition, the $145,125.00 purchase price represents fair market value for the Simms Parcel. The Buyers are purchasing the Simms Parcel in good faith. Finally, the sale of the Simms Parcel will not negatively affect the value of Mundy Ranch's remaining property.

DISCUSSION

1. Objections to Sale of the Simms Parcel

Father Mundy objects to the sale of the Simms Parcel on the grounds that: (1) the proposed purchase price is not reasonable; (2) the sale of the Simms Parcel could jeopardize a potential sale of the entire Mundy Ranch property; and (3) Mundy Ranch has not adequately disclosed what portion of the sale proceeds it intends to retain. Father Mundy also objects to Mundy Ranch using the sale proceeds to pay its operating expenses. The Court finds that the purchase price for the Simms Parcel represents fair market value and that the sale of the Simms Parcel will not adversely affect the value of Mundy Ranch's remaining property. Mundy Ranch has adequately disclosed that it intends to use the net sale proceeds to fund ongoing operations. The Court, therefore, concludes that these objections to the proposed sale of the Simms Parcel are without merit. The Court will approve the sale.

2. Objections to Relief Under 11 U.S.C. § 363(f)

Father Mundy also objects to the Court granting any relief under 11 U.S.C. § 363(f) if the sale is approved. He contends that he does not have an interest in the Simms Parcel within the meaning of 11 U.S.C. § 363(f) and, therefore, Mundy Ranch cannot sell it free and clear of the Partition Claim or the Lis Pendens. Alternatively, Father Mundy asserts that he has an interest in all of the Mundy Ranch property, including the Simms Parcel, as result of his assertion of the Partition Claim and that he is entitled to adequate protection under 11 U.S.C. §§ 361 and 363 if the Court approves a sale free and clear of his interest. See Memorandum Regarding Lis Pendens (Docket No. 43). More specifically, Father Mundy asks that all or his portion of the sale proceeds be sequestered until the Partition Claim is resolved.²Id. Father Mundy seeks to protect his interest against dissipation of the sale proceeds because, according to his objection, Mundy Ranch does not generate sufficient revenue to cover its expenses, and Mundy Ranch should not be allowed to “cannibalize” its assets and continue to dissipate proceeds. See Objection to Motion to Sell, ¶ 6 (Docket No. 36).

a. Whether the Partition Claim is an Interest in the Simms Parcel Within the Meaning of 11 U.S.C. § 363(f)

Mundy Ranch seeks a sale of the Simms Parcel free and clear of any interests, including Father Mundy's Partition Claim and the Lis Pendens. Section 363(f) permits a trustee or debtor in possession ³ to sell property belonging to the bankruptcy estate free and clear of interests in the property if the requirements of that section are met. That section provides:

The trustee may sell property ... free and clear of any interest in such property of an entity other than the estate, only if—

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;

(4) such interest is in bona fide dispute; or (5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

11 U.S.C. § 363(f).

The initial task before the Court is to determine the meaning of the phrase “any interest in such property” as used in 11 U.S.C. § 363(f). “Statutory construction must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.” Oklahoma Dept. of Securities, ex rel. Faught v. Wilcox, 691 F.3d 1171, 1181 (10th Cir.2012) ( quoting Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 175, 129 S.Ct. 2343, 174 L.Ed.2d 119 (2009) (internal quotations omitted)). Statutory terms must be construed according to their ordinary, common meaning unless they are specifically defined by the statute or...