In re NESV Ice, LLC

• Decision Date: 28 February 2023
• Docket Number: 21-11226-CJP
• Parties: In re: NESV ICE, LLC, et al.,[1] Debtors
• Court: U.S. Bankruptcy Court — District of Massachusetts

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In re: NESV ICE, LLC, et al.,^[1] Debtors

No. 21-11226-CJP

United States Bankruptcy Court, D. Massachusetts

February 28, 2023

AMENDED^[2] ORDER REGARDING ESTIMATION OF CLAIMS, VALUATION, AND TENTATIVE RULINGS ON CERTAIN OBJECTIONS TO CONFIRMATION

Christopher J. Panos, United States Bankruptcy Judge.

The Court having held the first phase of a bifurcated evidentiary confirmation hearing on the Second Amended Joint Plan of Reorganization of NESV Ice, LLC, NESV Swim, LLC, NESV Tennis LLC, NESV Land East, LLC, NESV Field, LLC, NESV Hotel, LLC NESV Land, LLC, Ashcroft Sullivan Sports Village Lender, LLC and Shubh Patel, LLC [Dkt. No. 345] (the "Plan") filed by the Debtors, Ashcroft Sullivan Sports Village Lender, LLC ("Ashcroft"), and Shubh Patel, LLC ("SP," together with the Debtors and Ashcroft, the "Proponents") regarding valuation and estimation of the claims of SHS ACK, LLC ("SHS"), Construction Source Management, LLC ("CSM"), and Ashcroft pursuant to the Plan Proponents' Motion to Estimate Construction Source Management, LLC's Claim [Dkt. No. 387], the Motion by Debtors, Ashcroft Sullivan Sports Village Lender, LLC, and Shubh Patel, LLC to Estimate SHS ACK, LLC Claim for Purpose of Voting on and Determining Confirmability of Plan [Dkt. No. 388], the Memorandum in Support of Validation of Mortgage and Claim of Ashcroft Sullivan Sports Village Lender, LLC [Dkt. No. 400], Debtors' and Shubh Patel, LLC'S Motion in Support of Proposed Compromise of Ashcroft Sullivan Sports Village Lender, LLC's Mortgage and Claims Under the Plan [Dkt. No. 403] (collectively, the "Motions"), and all related oppositions thereto filed by SHS [Dkt. No. 406] and CSM [Dkt. No. 408]; upon consideration of the Motions, the objections to the Motions, the Plan, the objections to confirmation filed by SHS [Dkt. No. 462] and CSM [Dkt. No. 463], the response to the confirmation objections filed by the Proponents [Dkt. No. 480], and the evidence presented at the four-day, Phase I portion of the confirmation hearing on the Plan, along with the arguments of counsel and posttrial briefs, I make the following rulings and orders:

I. Estimation of Claims

A. Standard

A bankruptcy court's authority to estimate claims arises from § 502(c)^[3] or Rule 3018 of the Federal Rules of Bankruptcy Procedure (the "Rules"), the policy interests underlying those provisions, and the Court's equitable powers under § 105. Section 502(c) provides, in relevant part, that:

There shall be estimated for purpose of allowance under this section-

(1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the estate.

11 U.S.C. § 502(c). Despite the "allowance" reference in § 502(c), that provision has been construed as a basis for estimating for temporary purposes and not only for allowance. See, e.g., In re Chemtura Corp., 448 B.R. 635, 649 (Bankr. S.D.N.Y. 2011) (concluding that "[c]laims estimation under Section 502(c)(1), . . . can be used for a variety of purposes, including determining voting rights on a reorganization plan, gauging plan feasibility, determining the likely aggregate amount of a related series of claims, setting claim distribution reserves, or (though this is less commonly wise) allowing claims"); In re Pac. Gas & Elec. Co., 295 B.R. 635, 642 (Bankr. N.D. Cal. 2003) (determining that "[a]n estimation under section 502(c) may be for broad or narrow purposes . . . the court may estimate a claim solely for the purpose of determining a creditor's ability to vote on a plan of reorganization or solely for the purpose of determining feasibility of a plan"); In re Adelphia Bus. Sols., Inc., 341 B.R. 415, 423 (Bankr. S.D.N.Y. 2003) (estimating administrative expense claims temporarily for feasibility purposes under section 502(c)); In re Ralph Lauren Womenswear, Inc., 197 B.R. 771, 775 (Bankr. S.D.N.Y. 1996) (citing both Rule 3018 and "the statutory predicate to Rule 3018(a)," §502(c), as the basis for estimation of a claim and its temporary allowance for plan purposes and concluding that the court's findings of fact will not have any preclusive effect upon the ultimate disposition of the claim). Rule 3018 allows claim estimation "for the purpose of accepting or rejecting a plan" where "[n]otwithstanding objection to a claim or interest, the court after notice and hearing may temporarily allow the claim or interest in an amount which the court deems proper." Fed.R.Bankr.P. 3018(a).

Neither § 502(c) nor Rule 3018(a) prescribe any method for temporary allowance and claim estimation and courts have broad discretion in deciding whether to temporarily allow a claim for voting purposes and how to estimate the claim. See, e.g., In re Chemtura Corp., 448 B.R. at 648 (acknowledging "neither the Code nor the Federal Rules of Bankruptcy Procedure provides any procedures or guidelines for estimation, and a bankruptcy court has wide discretion in accomplishing it"); In re Pac. Gas & Elec. Co., 295 B.R. at 642; In re Trident Shipworks, Inc., 247 B.R. 513, 514 (Bankr. M.D. Fla. 2000). "For both procedure and analytical methodology, bankruptcy courts may use whatever method is best suited to the contingencies of the case." In re Chemtura Corp., 448 B.R. at 649.

Claim estimation for purposes of voting and plan confirmation does not determine the final amount of the claim but only provides "limited voting authority to a creditor" so as to not unduly delay the chapter 11 case. See, e.g., Armstrong v. Rushton (In re Armstrong), 292 B.R. 344, 354 (B.A.P. 10th Cir. 2003). As a result, claim estimation for these purposes does not "entail consideration on the merits of all the issues in dispute respecting that claim," but only addresses the issues affecting the amount of the claim. In re Ralph Lauren Womenswear, Inc., 197 B.R. at 775. Courts are also "bound by the legal rules which may govern the ultimate value of the claim." Id. (citation omitted).

In estimating the claims for voting and confirmation purposes, some courts have chosen to assess the probabilities of success on the merits and then discount the claims accordingly. See, e.g., In re Ralph Lauren Womenswear, Inc., 197 B.R. at 775; In re Frascella Enters., 360 B.R. 435, 458-59 (Bankr. E.D. Pa. 2007). In In re Ralph Lauren Womenswear, Inc., the Bankruptcy Court for the Southern District of New York adopted the following standard:

"A trier of fact first determines which version [of the facts] is most probable and proceeds from there to determine an award in a fixed amount. An estimator of claims must take into account the likelihood that each party's version might or might not be accepted by a trier of fact. The estimated value of a claim is then the amount of the claim diminished by [the] probability that it may be sustainable only in part or not at all."

197 B.R. at 775 (quoting In re Windsor Plumbing Supply Co., Inc., 170 B.R. 503, 521 (Bankr. E.D.N.Y. 1994)). Based on this approach, the court made no "definitive findings of fact, but instead [assessed] the probabilities of the various contentions made by the parties passing muster upon [the court's] final adjudication of the claim." Id. The court further emphasized that the parties' legal arguments "must be evaluated not for the probability that they have merit, but rather for their correctness as a matter of governing law." Id.

Other courts have adopted the "all or nothing approach" by estimating a claim at $0 after finding the claimant "would not succeed on the merits" under Rule 3018(a) and § 502(c). See, e.g., Bittner v. Borne Chem. Co., 691 F.2d 134, 136-39 (3d Cir. 1982) (evaluating the claims at $0 by evaluating the "ultimate merits" of the claims in question, after the court found that the claimant's "counterclaim in the state action lacked legal merit" and that the possibility that the state court would find otherwise was remote); In re Kaplan, 186 B.R. 871, 874 (Bankr. D.N.J. 1995) (ruling that estimating of a claim at zero was appropriate when the bankruptcy court found that "the claim [was] contingent" and "the party probably would not succeed on the merits in a state court action."); In re Innovasystems, Inc., No.: 11-36228-ABA, 2014 WL 7235527, at *8 (Bankr. D.N.J. Dec. 18, 2014) (estimating the claim at $0 under Rule 3018(a) after recognizing the claimant's ultimately prevailing on the claims was "uncertain at best" especially in light of "its lack of success at the appellate level.").

For each claim estimation, I have evaluated many of the discrete issues presented by such claim, assessed the strengths and weaknesses of each party's position and what I perceive as risks, considered the evidence presented at the Phase I confirmation hearing, and attempted to estimate a result within the range of likely results. I make no findings of fact or determination of claims in these summary proceedings other than to estimate the claims for purposes of voting and consideration of confirmation of the Plan.

B. SHS Claim Estimation

On or about June 24, 2016, HarborOne Bank ("HarborOne") SHS's predecessor in interest, made loans to certain of the Debtors, including a construction loan in original principal amount of $9,506,000 (the "Construction Loan") and a term loan in the principal amount of $1,960,000 (the "Term Loan," together with the Construction Loan, the "Loans"). With respect to the Construction Loan, NESV Ice, LLC ("Ice") was the principal obligor and the remainder of the Debtors, NESV Swim, LLC, NESV Tennis, LLC, NESV Field, LLC, NESV Hotel, LLC, and NESV Land, LLC (initially excluding NESV Land East, LLC ("Land East")), were guarantors. The Debtors, other than Ice and Land East, were the principal obligors under the Term Loan and Ice was a guarantor. Given the summary...