In Re Newton C. Mullins, 09-70595.

• Decision Date: 22 June 2010
• Docket Number: No. 09-70595.,09-70595.
• Citation: 435 B.R. 352
• Parties: In re Newton C. MULLINS, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Virginia

435 B.R. 352

In re Newton C. MULLINS, Debtor.

No. 09-70595.

United States Bankruptcy Court,W.D. Virginia, Roanoke Division.

June 22, 2010.

COPYRIGHT MATERIAL OMITTED.

Robert Tayloe Copeland, Copeland & Bieger, P.C., Abingdon, VA, for Debtor.

MEMORANDUM DECISION

WILLIAM F. STONE Jr., Bankruptcy Judge.

The matters before the Court are the Debtor's Third Amended Disclosure Statement filed on April 20, 2010 (“Amended Disclosure Statement”), Third Amended Plan of Reorganization (“Amended Plan”) filed on April 20, 2010, and Motion to Confirm Plan Notwithstanding Balloting “Cramdown” (“Motion to Confirm”) filed on May 27, 2010. Following a hearing held on June 1, 2010 at which the Debtor was the only party in interest to appear, the Court took these matters under advisement. For the reasons that follow the Court will deny confirmation of the Amended Plan.

FINDINGS OF FACT

The Debtor practices dentistry through a wholly owned professional corporation known as Newton C. Mullins, Jr., D.D.S., P.C. He initiated this personal bankruptcy proceeding by filing a Chapter 11 voluntary petition on March 16, 2009. On April 9, 2010, the Court entered an Order denying confirmation of the Debtor's Second Non Material Amended Plan of Reorganization and granted the Debtor fourteen days to file a further amended plan and disclosure statement. On April 20, 2010, the Debtor filed the Amended Plan and Disclosure Statement now before the Court. On April 26, 2010, the Court entered an Order conditionally approving the Amended Disclosure Statement; fixing May 27, 2010 as the last day for filing written objections to the Amended Disclosure Statement; fixing May 25, 2010 as the last day to file objections to the Amended Plan and setting a hearing on confirmation for June 1, 2010.

The Amended Plan provides for payment to three classes of secured claims and two classes of unsecured claims, as well as the payment of administrative and priority claims. Class 1 consists of priority claims, which the Debtor proposes to pay in full if there are any such claims. Class 2 consists of the secured claim of New Peoples Bank on the Debtor's home in the amount of $272,317.65. Class 2A consists of another secured claim of New Peoples Bank on the Debtor's rental property of $125,913.92. Class 2B consists of a secured claim of Ford Motor Credit Company on the Debtor's 2006 Ford Freestyle automobile. ¹ The Debtor proposes to pay all secured creditors regular monthly installments with interest until their debts are paid, except that as to the secured claim of New Peoples Bank on the Debtor's rental property, that property shall continue to be marketed for sale and sold, with the proceeds being first used to pay the costs of sale, then the remaining balance due on the New Peoples Bank loan, with any surplus being devoted to the payment of Class 3 creditors. ² Class 3 consists of the general unsecured creditors of the Debtor, who were owed on the petition date, according to Schedule F filed on April 7, 2009, the aggregate sum of $970,844.46. According to the Amended Plan, the Debtor proposes to pay his net monthly income to his general unsecured creditors in an amount not less than $1,000 ³ per month over a period of 96 to 105 months until he has paid 12% ⁴ of their claims. The Amended Plan states that the payout to unsecured creditors will be approximately $105,910, while the Amended Disclosure Statement estimates this amount to be $116,501. In addition, any equity realized from the sale of the Debtor's rental property shall be paid to the unsecured creditors. ⁵ Class 3A consists of contingent unsecured obligations owed by the Debtor due to his guarantees of corporate secured debt of Newton C. Mullins, Jr., D.D.S., P.C. ⁶ According to the Amended Plan, this class includes at least Matsco, Manifest Funding Services and Financial Pacific. A Proof of Claim was filed by each of these creditors in the amount of $324,141.27, $97,814.40 and $21,583.61 respectively, for a total of $443,539.28. These debts shall be reaffirmed in the amount of fifty percent (50%) of the outstanding balance of the debt as of the effective date of the Plan. Finally, Class 4 consists of the interests of the Debtor in the property of the estate, which Debtor proposes to retain at the conclusion of the case.

Per Schedule A, at the time the petition was filed, the Debtor owned two pieces of real property: the rental property in Bristol, Tennessee valued at $135,000 and his personal residence in Big Stone Gap, Virginia valued at $305,000, subject to a mortgage indebtedness of $125,913.82 and $272,317.65 respectively. According to Schedule B, at the time of filing, the Debtor owned the following personal property with a total value of $74,575: Cash in the amount of $300 (all of which was claimed as exempt on Schedule C); a checking account in the amount of $200 (all of which was claimed as exempt); furniture valued at $15,000 ($5,000 of which was claimed as exempt); computer equipment valued at $100; books, pictures and art, cd collection and sports memorabilia with a total value of $15,000 ($4,500 of which was claimed as exempt); clothing valued at $5,000; wedding rings valued at $2,000 (all of which was claimed as exempt); golf clubs and equipment valued at $1,000 (all of which was claimed as exempt); 2006 Ford Freestyle valued at $12,650; 2008 Ford Fusion valued at $14,325; dental equipment and supplies valued at $8,000; family dogs valued at $1,000 (all of which was claimed as exempt). The Debtor testified rather hesitantly and equivocally at the January 5, 2010 hearing on confirmation of the prior plan as to the value of his dental practice, but seemed to be of the opinion that it did have value, possibly a fairly significant amount. It is not listed in the bankruptcy schedules, however.

According to Exhibit E (“Plan Proponent's Estimated Liquidated Value of Non Exempt Assets”) to the Amended Disclosure Statement, the Debtor's total assets at liquidation value total $84,000. The Debtor estimates that, after Chapter 7 Trustee's commission, Chapter 11 administrative expenses, U.S. Trustee fees and costs of sale of real estate, $40,350.00 would be available for distribution to general unsecured creditors under a Chapter 7 liquidation, which would result in the unsecured creditors receiving 4.48% of their claims. Based upon a six percent (6%) interest (or discount) rate, the present value, as of the effective date of the Plan, of the proposed payments to the general unsecured creditors of $1,000 per month for 105 months is $81,534.06, which is more than twice the purported liquidation value of the Debtor's property.

No objection was filed to either the Amended Disclosure Statement or the Amended Plan. On May 27, 2010, the United States Trustee filed a Statement indicating that his Office had reviewed the Amended Disclosure Statement and modified Plan and had no objection, but added that the Debtor should be required to introduce evidence that the proposed plan meets all of the requirements for confirmation contained in 11 U.S.C. § 1129(a) and (b). The Debtor filed a Plan Ballot Summary on May 27, 2010 showing that one creditor in Class 2B accepted the Amended Plan (total claim of $7,741.10); one creditor in Class 3 accepted the Amended Plan (total claim of $114,047.54) while five creditors holding claims aggregating $58,293.92 in such Class voted against it; and one creditor in Class 3A accepted the Amended Plan (total claim of $324,141.27). The Debtor also indicated that cramdown was requested and filed a Motion to Confirm requesting that the plan be “crammed down” pursuant to 11 U.S.C. § 1129(b).

Based on the foregoing findings of fact and other evidence presented at the confirmation hearing or appearing in the Amended Disclosure Statement, the Court finds that the Amended Plan satisfies the confirmation requirements set forth in 11 U.S.C. § 1129(a) other than sub-section (8) thereof, which requires “[w]ith respect to each class of claims or interests-[that] (A) such class has accepted the plan; or (B) such class is not impaired under the plan.”

CONCLUSIONS OF LAW

This Court has jurisdiction over this proceeding by virtue of the provisions of 28 U.S.C. §§ 1334(a) and 157(a) and the delegation made to this Court by Order from the District Court on July 24, 1984. The Court's consideration of the Debtor's Amended Disclosure Statement and Amended Plan is a “core” bankruptcy proceeding pursuant to 28 U.S.C. § 157(b)(2)(L).

The burden of proof to establish that a chapter 11 plan satisfies the statutory requirements for confirmation falls on the plan's proponent. See In re PPI Enters. (U.S.), Inc., 324 F.3d 197, 203 (3rd Cir.2003). See generally, B. Russell, Bankruptcy Evidence Manual, Vol. 2, § 301.76 at pp. 349-52 (West, 2009-2010 ed.).

One of the requirements for a chapter 11 plan confirmation is that each impaired class of creditors accepts the treatment provided for them in such plan. 11 U.S.C. § 1129(a)(8). Such a class “accepts” a plan when creditors in that class holding “at least two-thirds in amount and more than one-half in number of the allowed claims of such class ... that have accepted or rejected such plan” vote to accept it. 11 U.S.C. § 1126(c). Under this standard it is clear that Class 3 has not accepted the Amended Plan. Nevertheless, the Court is directed to confirm a plan which has not been accepted by every impaired class if at least one impaired class has accepted the plan and the Court determines that such plan “does not discriminate unfairly” against and is “fair and equitable” with respect to each impaired class which has not accepted the plan. 11 U.S.C. § 1129(b)(1).

Both Class 3 (the general unsecured creditors) and Class 3A (the Debtor's unsecured guaranties of corporate secured debt) are impaired, the former much more so than the latter. The former Class stand to get, principally if not entirely out of the Debtor's post-confirmation income,...